The Prem Prakash Bail Order

The verdict is out on what is to be made of the judgment by the Supreme Court in Prem Prakash v. Union of India [SLP (Crl.) 5416 / 2024, decided on 28.08.2024 ("Prem Prakash")]. The reason it is attracting so much attention is because of the Court's views on how to treat statements given by persons in custody in a PMLA case, which it expressed while granting bail to the petitioner. These views extend to statements made by the person concerned (Paras 21 to 34) as well as a statement of a co-accused person that is being pressed into reliance (Paras 35 to 37). 

The Holding

The facts are largely irrelevant for this post, and a quick summary would do. The petitioner was alleged to have been the puppeteer pulling the strings behind a number of persons, all towards orchestrating transfer of properties and monies by illegal means. The material used to substantiate these allegations consisted almost entirely of statements recorded by the Enforcement Directorate officials from the Petitioner whilst he was in custody, and statements of other co-accused persons and witnesses. 

In respect of statements by persons concerned, the court appears to have held that: (1) where a person was arrested by the Enforcement Directorate in one case and remanded to judicial custody by a court, the Directorate cannot record statements of that person under Section 50 of the PMLA in a different case without obtaining permission from a court which remanded the person to judicial custody (Para 33); (2) if a person is in custody under PMLA irrespective of the case for which he is under custody, statements under Section 50 PMLA of such a person shall be inadmissible against the maker as such statements will be hit by Section 25 of the Indian Evidence Act 1872 (Paras 27, 32). 

In respect of statements by co-accused persons, the Court has held that such statements would be hit by the rule under Section 30 of the Evidence Act which means that such statements cannot be treated as a piece of substantive evidence against an accused. This rule would apply even for the bail hearing, and will require that the agency fields other material since the statement of a co-accused can, at best, be used to lend assurance to other material (Paras 36, 37).

The Controversy

The only real controversy, I would argue, stems from the second part of the holding in respect of how to treat statements of persons in custody under PMLA. This set of observations lends itself to different readings, ranging from narrowest to broadest. 

The narrowest reading of Prem Prakash, which would be the storm in a teacup view, would be that the judgment emerged from unique facts and its conclusions must remain confined to those facts. Here, The petitioner was already in custody in one PMLA case, his statements were recorded and used in a different case. All that the Court has said is that only in such a situation would it be impermissible to use the statements against their maker. In all other cases i.e., where a person is arrested and questioned in the same case under PMLA, or where a person is in custody because of a non-PMLA case, there would be no such bar. 

The broadest view would argue that Prem Prakash has fundamentally altered the landscape by rendering any Section 50 PMLA statement given in custody after arrest, as a statement which cannot be used against the maker. Such a conclusion relies upon Para 32 of the judgment which begins: "We have no hesitation in holding that when an accused is in custody under PMLA irrespective of the case for which he is under custody, any statement under Section 50 PMLA to the same Investigating Agency is inadmissible against the maker. The reason being that the person in custody pursuant to the proceeding investigated by the same Investigating Agency is not a person who can be considered as one operating with a free mind." A person is not under some unique sense of duress merely because he is already in custody in one case and is now questioned in another, which is why Para 32 is phrased as it is. 

The problem, of course, is that Para 29 of the judgment seems to suggest precisely that a person is under a unique sense of threat: "Is a reasonable inference legitimately possible that, due to the vulnerable position in which the appellant was placed and the dominating position in which the Investigating Agency was situated, in view of the arrest in the other proceeding that, there obtained a conducive atmosphere to obtain a confession?" With due respect, this does not make sense, for the reasons already stated above. It is not the quantity of cases in which I am in custody, but the quality of the custodial experience which is what sets it apart. That is the true import of Justice Krishna Iyer's opinion in Nandini Satpathy, which the bench also invokes in Prem Prakash.

It is not just this obvious sense of internal contradictions that hamper Prem Prakash from achieving its fullest potential as a radical judgment which could force investigative agencies to abandon what appears to be the standard operating procedure to force the accused to make his own noose by recording damning statements which lack any kind of corroboration in material particulars, and then hang the accused with it. A related issue is the judgment's seeming reluctance to cross the rubicon on that extremely familiar issue in Indian criminal law and procedure — how to define 'police officer' for purposes of Section 25 of the Evidence Act. That clause bars evidence of confessions to police officers [discussed at length here] and it has been retained as section 23 in the Sakshya Adhiniyam. 

Prem Prakash refers to the Supreme Court's recent magnum opus on PMLA, the judgment in Vijay Madanlal Choudhary (2022). For a judgment which set out to clarify the law, it did a woeful job, as can be seen from the observations on this issue of whether Enforcement Directorate officers would be 'police officers' for the purposes of Section 25: 

"Ex-consequenti, the statements recorded by the authorities under the 2002 Act, of persons involved in the commission of the offence of money-laundering or the witnesses for the purposes of inquiry/investigation, cannot be hit by the vice of article 20(3) of the Constitution or for that matter, article 21 being procedure established by law. In a given case, whether the protection given to the accused who is being prosecuted for the offence of money-laundering, of section 25 of the Evidence Act is available or not, may have to be considered on case-to-case basis being rule of evidence."

This is remarkably confusing. Either an officer is or isn't a police officer, that is not a 'rule of evidence' that can be left to a case-to-case determination. Nevertheless, Para 24 in Prem Prakash skilfully uses this part to show us that the door was clearly not slammed shut on this issue by Vijay Madanlal, but there were a few cracks left yet. So far, so good. 

What happens next is the problem. Prem Prakash has relied upon a decision by three justices in Raja Ram Jaiswal [AIR 1964 SC 828] to understand 'police officer' under Section 25 in a purposive sense by looking to the kind of powers conferred upon an officer. It failed to mention that after Raja Ram Jaiswal came the Constitution Bench decision in Badku Joti Savant [AIR 1966 SC 1746], which offered a different and arguably narrower view of how to interpret 'police officer' for purposes of Section 25. In this limited view of who is a police officer, Badku Joti Savant argued that it has to be a person who can file a police report at the end of an investigation, something which the Enforcement Directorate officials conspicuously do not exercise under the PMLA. 

In other words, if the Court was taking the plunge on Section 25 in Prem Prakash, it had to set out more clearly how the existing law could be rationalised first with that part of Vijay Madanlal, and then give us a framework for expanding the contours of Section 25 to include Enforcement Directorate officials within it. This is not difficult. The periodic amendments to the PMLA and Section 44 which speaks of 'complaints' filed at the end of investigations, has brought that the PMLA investigative process closer and closer to a traditional police investigation, blurring the distinction between a complaint proceeding and one launched on a police report. For instance, Section 44 today has an explanation which allows 'further investigation' after filing a complaint , allowing 'subsequent complaints' to be filed.  

Thus, even if we cannot close our eyes to the unfortunate holding of Badku Joti Savant (as much as we might want to), it is today not that hard to slot in Enforcement Directorate officials as police officers for Section 25 even with that regressively formalistic framework. Unfortunately, this is left unsaid in Prem Prakash, and it would fall upon subsequent benches confronted with the problem to develop this thought. One would hope that they water the seed and nurture this plant rather than weed it out even before it has had a chance to show the smallest of green shoots. 

Will Prem Prakash prove to be seismic decision, or a mere storm in a teacup? Let us wait and see.

The Judgment in V. Senthil Balaji v. State — On Arrest and ED Custody (Part One)

On 07.08.2023, a Division Bench of the Supreme Court delivered its judgment in a batch of petitions concerning the legality of the arrest and detention of V. Senthil Balaji, a Minister in the State of Tamil Nadu, by officers of the Enforcement Directorate on allegations of offences under the Prevention of Money Laundering Act 2002 ["PMLA"] [V. Senthil Balaji v. State rep. by Deputy Director & Ors., Crl. Appeal Nos. 2284-85 of 2023 (Decided on 07.08.2023) ("Balaji")]. 

The facts are recounted at the outset in Balaji, and in the orders passed by the Madras High Court [here, and here] which ultimately led to the case moving up to the Supreme Court. Rather than set them out in the same extensive, and contested, detail, for this post I will only narrate the most critical aspects of the case: (i) There was an arrest by the Enforcement Directorate, (ii) A judicial order granting custody of V. Senthil Balaji to the Directorate was passed, (iii) The Directorate could not take his custody within the first fifteen days of his arrest because of health issues forcing Mr. Balaji to be admitted to the hospital.  

Mr. Balaji and his family contended before the Supreme Court that his arrest illegal, as well as the order granting his custody to the Directorate, and even if neither of these claims were accepted then Mr. Balaji could only be sent to custody in jail since fifteen days had elapsed since his arrest. In Balaji, the Supreme Court rejected each of these contentions, and went ahead to cast doubts over the existing legal position as per which detention of an accused outside of the first fifteen days of an arrest could only be in jail and not with the investigating agency. 

Through this post and the next, an effort will be made to examine the judgment and the Court's answers. In this post, the focus is on the conclusion that the arrest was legal, and that the Enforcement Directorate could take custody of an accused during the investigation. The next post will specifically engage with how the Court in Balaji construed the relevant provisions of the Criminal Procedure Code 1973 ["Cr.P.C."] i.e., interpretation of Section 167, Cr.P.C., in respect of the nature of detention after arrest.

A Digression

Before going forward with the discussion, a digression. The opinion in Balaji is divided into sections to deal with specific issues, many of which begin with a quotation, presumably for pithily presenting to a reader the lens through which the Court viewed the issue at hand. Picking quotations, however, is a tricky path to tread; not only must we be careful about who is being quoted, but we must also be careful about not using a sentence or remark out of context. 

The quotations in Balaji, unfortunately, falter on both fronts. "All power is of an encroaching nature" is a quote used at the start of the section in the judgment which hopes to explain how the PMLA contains a set of provisions which place reasonable restrictions on the power of arrest. Not only is it wrongly attributed to Justice Frankfurter's opinion (dissenting, mind you) in Trop v. Dulles [356 U.S. 86 (1958)] — it is in fact attributed in the opinion itself to James Madison (Federalist No. 48) — but the context of this quote is entirely misplaced. The quote is a critique of state power, not a paean to it. 

Later on, a phrase attributed to Sophocles, "Law can never be enforced unless fear supports them", is used to emphasise how the PMLA itself has provisions punishing misuse of arrest powers by officers. This is a surprisingly popular phrase with Indian courts, and its proper context has been detailed elsewhere just to highlight how problematic its invocation in any judicial order within a democratic republic ought to be. And, lastly, there is a quote attributed to Benjamin Cardozo — "Justice, though due to the accused, is due to the accuser too". A remark made in the context of the problems of overturning a conviction for murder on grounds of procedural error comes to justify the vesting of greater powers with the state for restraining personal liberty during the investigation phase.

Arrest and Custody with the Enforcement Directorate

On Arrest

Mr. Balaji's arrest was challenged on a very simple point. It was contended that while the PMLA allowed for the arrest of persons by Enforcement Directorate officials under Section 19 of that Act, the procedure for such an arrest was not specific anywhere in Section 19 or other provisions of the PMLA. This silence of the PMLA required consulting the general law of the Cr.P.C., since Section 65 of the PMLA rendered the Cr.P.C. applicable wherever it was not inconsistent with anything in the PMLA. Pursuing the argument to its logical end, it was contended that since the PMLA offences were only punishable up to seven years, the Cr.P.C. arrest procedure (as explained by the Supreme Court itself) required prior notices to an accused under Section 41-A of the Cr.P.C. or specific justifications for departing from this course to jump to an arrest.

Balaji held that this contention was based on a flawed premise, since Section 19 did in fact lay out how the arrest was to be carried out. The PMLA had, in the words of the Supreme Court, a "comprehensive procedure" [para 32] and a "different and distinct methodology [compared to Cr.P.C.]" [para 33] in place on the matter, which meant that resort to the Cr.P.C. would not be permissible as it would create a conflict between the two regimes. A clause which merely (i) lists the officer capable of exercising arrest powers, (ii) reiterates constitutional mandates about informing a person about grounds of arrest and their timely production before court, and (iii) specifies one procedural aspect (sending a copy of the arrest order in a sealed cover to another authority) is a "comprehensive procedure" [This becomes "rigorous procedure" in para 82]. There could not be a lower threshold to cross. Curiously enough, at a subsequent place in the judgment [para 67], the Court says that "Section 19 of the PMLA, 2002 supplemented by Section 167 of the CrPC, 1973 does provide adequate safeguards to an arrested person" leaving one further in doubt as to the comprehensive nature of Section 19.  

The Court offers supporting arguments to justify the interpretive choice being made in Balaji. The Court notes that introducing a requirement of issuing a notice prior to arrest, as under Section 41-A of the Cr.P.C., "might seriously impair the ongoing investigation" by placing a person in the "know-how" [para 33]. In any event, the Court notes Section 41-A was never seen as being applicable to anything other than minor offences [para 37]. Both lines of argument are deeply concerning. In seemingly restricting the scope of Section 41-A to so-called minor offences not only does the Court add context to the text of the statute which is notably absent — the provision does not restrict itself to minor offences, but all offences that are punishable with terms up to seven years in prison — but the Court also betrays its own recent history where it was using this provision to strike a fairer bargain between investigative needs and individual liberty. In promoting secrecy of investigations as a justification for arrest, the Court conflates the presumed need to be discreet about ongoing investigations with the entirely separate issue of considering what are proportionate intrusions into personal liberty to safeguard state interests. We have on display the classic anti-terror / serious crime gambit — the executive raises the stakes so high that courts are cowered into thinking that nothing other than completely sacrificing individual liberty to secure the state's interests is acceptable, lest the very state perish.  

On Custody

Which then brings us to the issue of what happens after arrests of persons. Here, as in most other cases, the Enforcement Directorate sought to take custody of the accused for purposes of investigation. However, the "comprehensive procedure" on arrest which the Court extolled in Balaji was surprisingly silent on such matters, requiring a reference to the general law under the Cr.P.C. 

This meant turning to Section 167 Cr.P.C., and that provision presented a slight issue. Section 167 permits court-sanctioned custodial detentions of persons after their arrest, and says that persons may either be detained in custody of the court by being placed in jail, or in the custody of the investigating agency by being placed in the lockup area that an agency would have. Unfortunately, the provision does not use the phrase "investigating agency", and instead refers specifically to "police custody" on this matter. This is where the problem arises: the Enforcement Directorate, much like many other central agencies, does not want its officers to be called "police" and nor is not seen as "police" in the eyes of courts. But if the Directorate has no police officers, then how can Section 167 which permits "police" custody allow a person to be detained by this agency's officials?

Convincing argument, or mere sophistry? Balaji concluded it was the latter, but without offering any clear reasons. At one place, the Court held that since Section 167 refers to detention in "such custody" as is considered fit by the judge, this would permit detention with agencies other than police as well [paras 45, 55, 85]. At another place, the Court concluded that since Section 167 was indeed applicable to the PMLA context to determine the maximum time of detention post arrest, its provisions permitting the detention of persons in the custody of the agency also had to be applied [paras 26, 70, 83]. And, briefly, the Court also hinted that this issue had already been considered in respect of other agencies in this fashion such as the Customs Act 1962, albeit those specific statutes specifically permitted treating officials as police officers for purposes of seeking custodial detention [para 82].  

Taken separately, or all together, it is difficult to remain convinced by the reasons offered by the Court for concluding that the terms of the PMLA, read together with the Cr.P.C., permit officials of the Directorate of Enforcement to obtain custodial detention of arrested persons. With respect to "such custody" in Section 167(1), it is rather surprising that in a judgment where the Court repeatedly insists upon reading provisions as a whole, on this aspect the Court was more than willing to read one phrase in isolation because it helped prop up its conclusions. Section 167(1) certainly refers to "such custody", but reference to the remainder of the provision makes it apparent that this is a binary between "police" and "court" / "judicial" custody. Reliance upon the 37th Report of the Law Commission on this issue by the Court [para 55] was entirely misplaced, firstly because it considered Section 167 as it was in the 1898 Code which did not contain the remaining clauses clarifying the binary choice before a court today, and secondly because the relevant para of that Report equated "such custody" as being outside of an investigative agency, which is certainly not what the Court in Balaji sought to conclude.

There is no gainsaying that in respect of the several other central agencies, earlier decisions of the Court had permitted custodial detention of an accused to be granted to them. This included even the Directorate officials. Unfortunately, there is equally no disputing the fact that the relevant provisions in those statutes were differently worded than the PMLA. Surely, a "comprehensive" and "rigorous" statutory procedure on the matter of arrests could not have accidentally been left ominously silent on this crucial issue of what happens after an arrest? Where on the one hand the Court emphasises relying upon the plain text of laws to infer legislative intent, one wonders why the same standards do not apply when it was confronted with a clear distinction between the PMLA on the one hand, and earlier laws on such matters on the other.  

If the Court was of the view that Parliament had erred in not repeating the same formula of older laws in the PMLA, it was nevertheless bound to follow the law is it stood or offer strong reasons for filling up what it saw as a gap. It did neither in Balaji.    

Contrary to what Balaji seems to portray, applying Section 167 Cr.P.C. together with Section 19 PMLA without necessarily permitting custodial detention of persons with Enforcement Directorate officers was far from being a strained or piecemeal way of applying both statutes together. Might it have been intended by Parliament to deny the agency investigating PMLA offences custodial detention, because such cases are the product of investigations done by other agencies where accused persons would likely have been arrested and questioned in custody? Considering that arrest powers under PMLA are pegged at a higher threshold than the Cr.P.C. — which the Court in Balaji agrees with — to permit arrest only where officers have reasons to believe a person is guilty of an offence, perhaps Parliament intentionally decided to not permit persons being detained in investigative custody with an agency which already has enough material to conclude the person is guilty of the crime?

The House that Vijay Madanlal Choudhary Built

Balaji comes barely a year after the Supreme Court had decided various issues in context of the PMLA in Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. [2022 SCC OnLine 929 ("VMC")] [Discussed on the Blog here and here]. At the heart of VMC was the Court's finding that the PMLA was not a penal or civil statute but a 'sui generis' legislation. On the strength of this finding the Court constructed a defence of the PMLA's validity, including its provisions on arrest and bail. As argued elsewhere, this defence was high on rhetoric and low on reasoning, deploying phrases like 'sui generis' to evade critical scrutiny of the law and support vesting broad powers with the executive. How does anyone but the creator and framer of a 'sui generis' know what it needs and what it doesn't?  

The 'sui generis' argument could not be tested before the bench in Balaji which was of lesser strength than VMC, but its shadow loomed large over the arguments being made here, and in a sense foretold the result. Because the PMLA is a 'sui generis' regime, even patently limited procedures can appear "comprehensive" and "rigorous" to a Court because these might be exactly what a 'sui generis' regime needs. 

Balaji thus offers a good glimpse of the house that VMC has built for dealing with any future challenges to how the PMLA operates. Persons contesting the government are essentially with an onerous handicap, as the goalpost itself is a perpetually shapeshifting, 'sui generis' one.

Conclusion

The Court in Balaji upheld a reading of the PMLA and the Cr.P.C. which permits Enforcement Directorate officials to arrest persons without notice and in the absence of any compelling justification behind such an arrest without notice. It also upheld a reading of the laws which permit the detention of arrested persons in the custody of Directorate officials. In doing so, it has only reiterated how most courts had been applying the law and not shaken up the status quo to any great extent. What is more interesting is the rather timid set of reasons the Court was able to muster in support of its conclusions. In effect, this is perhaps the state of things to come for all things PMLA, where 'sui generis' can help sustain anything and everything under this statute.

The next post considers the Court's conclusions on a different issue, the interpretation of Section 167 of the Cr.P.C., where the Court has taken big strides towards upsetting the status quo. 

Assessing the PMLA Landscape Six Months after Vijay Madanlal Choudhary

It has been nearly six months since a Three Justices' Bench of the Supreme Court delivered judgments in a batch of petitions raising various challenges to the validity of the Prevention of Money Laundering Act, 2002 [PMLA]. Vijay Madanlal Choudhary—taking the name of the lead petition—generated a lot of controversy and commentary at the time with this Blog taking the view that the Bench had arrived at the legally incorrect conclusion on too many of the issues placed before it. 

While a review to the judgment has been filed and is pending, Vijay Madanlal Choudhary is good law as on date. So, given the importance of the case and its impact on the field, it would be useful to take stock of its impact in the last six months at the level of High Courts. Two particular areas have emerged as sites of intense activity thus far: the relationship between the underlying Scheduled offence and the money laundering prosecution, and bail for money laundering offences. Finally, I also comment on areas of PMLA that have arguably seen too little activity post the judgment and how this is a problem.  

Scheduled Offences, Proceeds of Crime, and Money Laundering 

A quick recap — the PMLA is a parasitic law, insofar as the definition of money laundering is pegged to the existence of 'Proceeds of Crime', which in turn rely upon the commission of 'Scheduled Offences' at an earlier point in time. If there are no Scheduled Offences [offences from a gamut of laws that are specified in the Schedule to PMLA, hence the term 'Scheduled' offence], there can be no Proceeds of Crime, and thus no 'money' to launder in the first place. Thus, there is an inextricable link between the predicate crime and the money laundering offence.

The government had argued against this view in Vijay Madanlal Choudhary to try and separate the two sets of proceedings to sustain PMLA prosecutions in cases where persons were acquitted or discharged in the predicate offence. This argument was rejected, unequivocally, and the Supreme Court held that where a prosecution under the Scheduled Offence had failed, then the logical next step was for the PMLA case to also fall by the wayside. If anything, Vijay Madanlal Choudhary deepened the links by holding that the Proceeds of Crime must be 'generated' or 'derived' from criminal activity relating to the commission of a Scheduled Offence, and not merely be an unrelated consequence. 

This relationship has been explored in a number of cases since Vijay Madanlal Choudhary before different High Courts as well as the Supreme Court itself. The straightforward application has been closing PMLA cases when the predicate offence prosecution ended in an acquittal [Parvathi Kollur (Crl Appeal No. 1254 of 2022, Decided on 16.08.2022)]. Another has been the view that trial courts ought to await conclusion of the trial in the Scheduled Offence before passing any judgment in the PMLA case [Jagathi Publications] 

But what happens if the scheduled offence prosecution fails not due to an acquittal or discharge on merits, but because of compromise, or if the agency closes the investigation for lack of evidence, or if some procedural breach such as failure to obtain sanction had occurred? These scenarios have emerged before different courts over the past six months, with the Enforcement Directorate taking the view that only if the predicate offence was closed on merits would the subsequent PMLA case have to be closed as well — something that the Telangana High Court had endorsed two years before Vijay Madanlal Choudhary [Ishoo Narang, Crl. P. 3966 / 2020, Decided on 22.12.2020]. 

Two High Courts have rejected this contention. The Delhi High Court in Harish Fabiani [WP (Crl.) 408 / 2022, Decided on 26.09.2022] was dealing with a case where the predicate offence was quashed by a High Court on grounds of the FIR being lodged in a manner contrary to Section 156(3) of the Criminal Procedure Code, 1973 [Cr.P.C.], and prayers to quash the PMLA proceedings launched as a consequence of that underlying case. It agreed to do so, concluding that whatever be the reason, the fact remains that when the underlying prosecution is closed then there is no Scheduled Offence alive in the eyes of the law for there to be Proceeds of Crime. In the Calcutta High Court, a petition to close PMLA proceedings was filed after the underlying prosecution was closed based on a compromise between the banks and accused [Nik Nish, CRR 2752 / 2018, Decided on 28.11.2022] —   it agreed with the Delhi High Court, and allowed the petition.

Separately, it was argued before the Madras High Court that a person not named in the prosecution for the Scheduled Offence could not be independently prosecuted in the PMLA case. This view was rejected, as the court was of the view that persons not involved in the commission of the Scheduled Offence could certainly be involved in subsequent stages of committing money laundering. As of now, though, the order  has been stayed by the Supreme Court which is seized of a challenge to the same.

Two different arguments are also being tested on the ground. First, it is being argued that the deep link drawn between commission of Scheduled Offences and generation of Proceeds of Crime requires the courts to reconsider whether all kinds of Scheduled Offences can in fact lead to such a generation of any property. The Madras High Court is considering the issue in context of PMLA proceedings being launched where a public servant was prosecuted for possessing disproportionate assets, and has granted a stay. Second, both the Delhi High Court and Madras High Court are considering whether PMLA prosecutions launched where the underlying offence is that of possessing disproportionate assets violates fundamental rights against double jeopardy [Article 20(2)] and the retrospective enhancement of punishment [Article 20(1)]. 

Bail, The Revival of Twin Conditions, and the Shadow of Antil

One of the most critiqued conclusions in Vijay Madanlal Choudhary was its finding that the revival of the harsh legal regime governing bail was legal [having been struck down in Nikesh Tarachand Shah, (2018) 11 SCC 1], and that this applied to even anticipatory bail besides regular bail. This naturally makes bail a much tougher proposition than a situation where these harsh conditions do not exist, and one reaction on part of applicants has been to stress upon medical grounds and limit arguments on merits, with the Delhi High Court agreeing that 'sick or infirm' persons are statutorily outside the scope of the harsh conditions.

Another approach has been to insist upon a stricter scrutiny of the prosecution case, especially testing the links between the scheduled offence, generation of proceeds of crime, and engaging with such proceeds of crime in one of the kinds of activities specified under the PMLA. This approach shines through in how the Bombay High Court [Anil Vasantrao Deshmukh, Bail Appln. No. 1021 / 2022, Decided on 04.10.2022] as well as the Delhi High Court [Sanjay Pandey, Bail Appln. No. 2409 / 2022, Decided on 08.12.2022] have been considering bail applications.       

A unique problem arose in the aftermath of Vijay Madanlal Choudhary and bail in PMLA cases. While the judgment was reserved, a different bench of the Supreme Court passed its orders in Satender Kumar Antil on 11.07.2022 where it recommended that for persons who had been prosecuted without arrest during the investigation phase, bail ought to ordinarily be an inflexible rule and the harsh conditions in laws such as the PMLA should not stand in the way of this outcome. Naturally, Vijay Madanlal Choudhary failed to say anything on the matter. This led to applicants arguing that the sphere of influence held by Satender Kumar Antil remained untrammelled, and the Enforcement Directorate opposing this view. So far, only the Delhi High Court appears to have considered the issue and delivered a clear finding, holding that the harsh set of conditions for bail under PMLA would only apply to persons arrested during investigation [Rana Kapoor, Bail Appln. No. 559 / 2022, Decided on 25.11.2022].           

Missing in Action — Stricter Scrutiny of the Attachment Process

Vijay Madanlal Choudhary stressed upon the importance of having a statutory mechanism to redress any grievances regarding illegal exercise of the power to attach properties pending a prosecution for money laundering offences. This mechanism is the Adjudicating Authority, which is required to independently assess the validity of any seizures, attachments, or freezing orders (of bank accounts) that are undertaken by the Enforcement Directorate. So far, there has been little movement in the High Courts taking a closer look at the process by which the Adjudicating Authority functions which is surprising considering a bulk of the effort in PMLA cases is on property attachment and convictions are rare and belated. 

A sharp look at the attachment process would suggest many of its areas are ripe for examination by a High Court on the grounds of these proceedings unconstitutionally violating the right to a fair hearing and the right to life. For instance, despite the stakes involved, no witnesses are put through cross-examination to test the sufficiency of findings and the Adjudicating Authority operates primarily on the sufficiency of material supplied by the agency. Further, there is no consideration of leaving out some monies from the net of provisional attachment to ensure that a person who is still presumed innocent pending a prosecution is left without a means to survive or contest litigation.

Conclusions: No Certainty in Sight

In the eight years leading up to the mammoth judgment in Vijay Madanlal Choudhary, the Supreme Court added more and more cases to the pending batch of matters, with the idea that it would settle issues once-and-for-all through a comprehensive review of the PMLA. This was in spite of the fact that some of the issues that it decided to take up were indirectly pending consideration before a larger Bench of Justices. 

If Vijay Madanlal Choudhary left people unsure of just how successful the Court had been in this effort, the subsequent months have removed most of these doubts confirming that there is no certainty on almost all the issues that the Court decided. Perhaps the biggest reason for this uncertainty is the fact that less than a month after the decision, the Supreme Court cryptically agreed that "at least two" of the conclusions in the judgment merited review. However, to blame the pending review for the uncertainty would be cutting too much slack for the startling lack of reasoning on display throughout the judgment. On each of the issues, the Court failed to adequately offer any reasons before merely declaring its conclusions on the matters, giving us the present scenario of having little or no help in resolving issues that are arising in the penumbras of these declarations drafted in unclear prose. In some ways this is a very similar experience to the aftermath of the Constitution Bench decision in Lalita Kumari where the Court did not explain much while declaring the law in unclear terms.

The Supreme Court could take up the review petitions for hearing soon in a bid to try and steer the ship, but a band-aid exercise of that nature is unlikely to prove sufficient enough to cover all the gaping chasms left behind by Vijay Madanlal Choudhary and its countless leaps of logic. Without knowing it, the same cycle is upon us again — different High Courts arriving at different conclusions on how to interpret the PMLA. One wonders whether the Supreme Court will adopt the same approach as it did in Vijay Madanlal Choudhary and keep things in limbo this time around, or address problems as they reach its doors.

Old Wine in New Bottles? — The Judgment in Vijay Madanlal Choudhary (Part Two)

The previous post in this two-part series considered how the Supreme Court's judgment in Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. [SLP Crl. No. 4364 of 2014; Judgment dated 27.07.2022 ("Vijay Madanlal Choudhary") dealt with the offence of money laundering under the Prevention of Money Laundering Act 2002 ["PMLA"]. This post turns its lens to how the judgment understood the procedural facets of that statute. It first recaps the important holdings of the Court, and then turns to a critique. As a result, this post is longer than the previous one.

The Findings on Searches and Arrest

The challenge to powers of search conferred by the PMLA primarily arose due to amendments made to Section 17 of the Act in 2019, whereby a proviso was removed. This proviso was in the nature of a pre-condition that had to be satisfied before a search action under PMLA could be undertaken, and essentially required that an investigation in respect of the scheduled offence ought to have been started. By removing this anchor of the scheduled offence, it was argued that the entire logic of the PMLA had been turned on its head.

For arrests, the argument was much simpler — Section 19 of the PMLA enabled arrests without securing the minimum safeguards that the ordinary criminal procedure under the Criminal Procedure Code  1973 ["Cr.P.C."] allowed, and thus ought to be struck down. Unlike ordinary law, there was no system in the PMLA for an arrested person to know the case against her since no First Information Report was recorded under the PMLA. If Section 19 had to be saved, then the Court ought to declare that the PMLA equivalent — a document called the Enforcement Case Information report or "ECIR" according to Petitioners — ought to be shared with the arrested person. 

The Court did not find any such problem with either the search or the arrest powers. In case of the former, it upheld the amendment and held that it expressed the legislative policy (not to be questioned) of treating money laundering seriously. It made sense to de-link the PMLA process from the scheduled offence to not leave the former hamstrung in cases where there is somehow a lapse in prosecuting the scheduled offence. If anything, this enabled the Enforcement Directorate to take action and then ask the sleepy police to also take action. In respect of safeguards, and here the analysis dovetails with the Court's observations on the arrest powers, it noted that comparing the PMLA with a penal statute was incorrect since it was a sui generis law. Even though the statute had used the word 'investigation' to describe the process of the Enforcement Directorate, it was more appropriate to read it as 'inquiry' instead given the PMLA had many facets besides investigating commission of crime.

With that context, it was of the view that the PMLA had many safeguards which made any worries about abuse were unfounded: the powers could only be exercised by very senior officers, with a necessary requirement of recording reasons in writing and forwarding them to a separate authority, and by a statutory provision penalising vexatious searches or arrests. In case of arrests, the Court held that an ECIR was not a First Information Report but an internal document; anyway, a statutory requirement under Section 19 to share grounds of arrest fulfilled the need to inform a person about the case against her.

On "Section 50" PMLA Statements

Section 50 PMLA enables Enforcement Directorate officials to record statements on oath from any person. It was subjected to a limited, twinfold challenge. Firstly, that clause must be read down in terms of Article 20(3) of the Constitution of India, and secondly, that statements recorded under Section 50 ought to be hit by the bar under Section 25 of the Indian Evidence Act 1872 ["IEA"] rendering confessions to police officers inadmissible, if sought to be used at a subsequent trial.

Since the PMLA was not seen as a penal statute by the Court, and 'investigations' were 'inquiries', it was only logical for the Court to reject submissions on this front as well. The rejection of the Section 25 IEA submission was resounding, with the Court relying upon a line of precedent stretching all the way back to the mid 1960s, where similar powers for officers of other agencies acting under the Customs Act 1962 and other state laws were upheld. The Court noticed the recent judgment in Tofan Singh [(2021) 4 SCC 1] which had extended such guarantees to the Narcotic Drugs & Psychotropic Substances Act 1985 ["NDPS Act"]. As had been argued earlier on this blog, Tofan Singh carefully tailored its findings on the peculiar statutory scheme of the NDPS Act, and the Court in Vijay Madanlal Choudhary relied on this aspect to distinguish it from the PMLA context.

For Article 20(3) of the Constitution, the Court observed that every person summoned to give statements under Section 50 cannot be a person 'accused of an offence', again relying upon precedent which went back to the 1950s concerning powers to record statements conferred under other laws including the Companies Act 1956, the Customs Act, and the Foreign Exchange Regulation Act 1973 ["FERA"]. However, where persons under arrest were questioned, it acknowledged that the clause may apply, leaving that determination open to the peculiar facts of each case.       

On Bail

In 2018, a different bench of the Supreme Court in Nikesh Tarachand Shah [(2018) 11 SCC 1] struck down Section 45 of the PMLA partially, as it then stood. This clause imposed what are popularly known as the 'twin conditions' of bail — restrictive conditions that are found in some laws which require that before granting bail the prosecutor must be heard and a court should be satisfied that (i) the accused was not guilty of the offence, (ii) the accused is not likely to commit any offence while on bail (see here for more). The reasons behind striking down these parts of Section 45, as it had been explained earlier, was not because the court had any problem with the twin conditions, but only because the manner in which the PMLA applied the conditions was found to be arbitrary — it was based on the kind of scheduled offence allegations involved, and since the legislature had completely eroded any rationality in the scheme of the schedule this made application of Section 45, in turn, arbitrary. 

In 2018, Parliament sought to solve this problem by doing away with this classification based application of Section 45 altogether — now, it would apply to all cases under PMLA. This amendment to the law was challenged as unconstitutional. The Court disagreed. Firstly, it explained how nothing prevented a future legislature from remedying a defect identified in Section 45 by Nikesh Tarachand Shah. Secondly, it held that the manner in which Parliament had chosen to remedy this defect — by abandoning the classification altogether — was not unconstitutional as money laundering is exactly the kind of offence which warrants such restrictive bail conditions. At the same time, the Court noted that the twin conditions would not apply in cases of being granted bail for delays in investigation [Section 167(2) Cr.P.C.] or prosecution [Section 436A Cr.P.C.]  

Critiquing the Findings on Investigative Aspects 

Section 17 — The Tail Wags the Dog

Recall that the very definition of money laundering under the PMLA is intrinsically linked to a scheduled offence. It is that property which is derived or obtained by engaging in acts relating to scheduled offences which become proceeds of crime, which are the heart and soul of the PMLA. Seen from this perspective, a statutory limit on the agency concerned with money laundering to hold its hands till there was at least a suspicion of there having been a scheduled offence makes sense. At the same time, it also makes sense to not ask agencies to wait till that investigation is over to do something. This is the balance that was struck by Section 17, through a proviso which required an investigation into the scheduled offence to have begun before the Enforcement Directorate undertook searches etc.

The Court, in trusting legislative policy, has now approved a state of affairs where the tail shall wag the dog. It is justified, the Court tells us, to allow the Enforcement Directorate to proceed to ensure the system can be cleansed of money laundering. All that is rhetoric, not reasoning. No matter which you look at it, in the current scheme of things where the existence of a scheduled offence is necessary for the PMLA, letting the PMLA process begin even before anyone has alleged the commission of a scheduled offence does not stand to reason. In effect, it makes the judgment of the Directorate also determinative for deciding whether or not a scheduled offence might have been committed, which is nowhere within its mandate. Considering the plethora of scheduled offences that already exist, one can appreciate the perception that this provision allows the Enforcement Directorate to create money laundering allegations where there might not be any, for which police station will disagree with a letter from the 'very senior officers' telling them to register a case for commission of scheduled offences?

We can keep taking turns at it, but a square peg will not fit in a round hole. 

Non-Existent Safeguards?

Vijay Madanlal Choudhary extols the many safeguards present in the scheme of Sections 17 to 19 of the PMLA to consign worries about abuse of powers into the dustbin. The seniority of the empowered official is supposed to allay fears of misuse, as is the existence of a provision punishing vexatious exercise of power. None of this is new: the same logic was offered when coercive powers granted under other socio-economic laws were challenged in the past. What is, nevertheless, worthy of note is the uncritical, almost loving eye, with which the view is re-affirmed by the Court. The Petitioners made submissions about the biased nature of enforcement under the Act, the inherent limits of provisions punishing abuse of power — it would require internal sanction, which rarely comes — and the paltry rate of conviction to suggest that the threat of abuse and misuse was not mitigated by the purported safeguards. The Court did not so much as blink in the face of this criticism, and its suggestion of trusting the officials would certainly leave some corners bemused, as conservative a view as that may be. 

The Sui Generis Argument is Flawed

The idea that the PMLA is not a penal law but a sui generis law is central to much of the Court's reasoning in Vijay Madanlal Choudhary. This is the justification for holding it unnecessary to bring the PMLA at par with other penal statutes in terms of procedural safeguards conferred upon persons who may get entangled in the PMLA process. 

The previous post explored this argument from the perspective of how the civil and criminal machinery within the PMLA operated while comparing it with other laws. It argued, that the PMLA did not allow for its civil process to live independent of its criminal process; indeed, without a prosecution for the offence, the civil action would die a natural death sooner rather than later. So the idea that PMLA also deals with inquiries ending in civil consequences is a half-baked truth at best.

We need to return to that comparative perspective and now look at the PMLA together with the other kinds of socio-economic offences that have been passed over time, to assess the Court's reasoning when it comes to procedural safeguards regarding questioning persons. It is difficult to take stock of all such laws passed at the state and central levels, but it would suffice if we take note of some primary central ones — the Customs Act 1962 (preceded by the Sea Customs Act of 1878), the Companies Acts of 1956 and 2013, the Foreign Exchange Regulation Act 1973 ["FERA"]. Vijay Madanlal Choudhary draws comparisons between the PMLA and these laws, for which the Supreme Court has repelled legal challenges in the past by holding that the questioning of persons under those laws is for an inquiry unlike criminal investigation, to hold that the PMLA ought to be treated similarly. 

This comparison is flawed, because while the Customs Act, or FERA, or even the Companies Act, allow officers to file a civil action for penalties at the end of an inquiry, there is no such option in the PMLA. So, in case of the former, the idea that powers to question people or even arrest them are not necessary linked to a future prosecution has at least some legs to stand on because that outcome is statutorily possible. Of course, this does not address the problem in deciding whether procedural safeguards that are relevant during an inquiry should apply basis how an inquiry ends, and whether Article 20(3) should not apply to questioning and Section 25 IEA should not apply in the cases where the inquiry does result in a criminal prosecution. For the PMLA, there is no such possibility; a standalone civil action cannot last beyond 180 + 365 days. What's more, the PMLA is linked to the fact of a crime, and thus any inquiry where persons accused of that prior offence are called, are already placed very differently from individuals suspected of customs duty evasion. 

The theoretical sophistry that the Court had been able to rely upon in the past with FERA or the Customs Act is simply not available to it when it comes to the PMLA, where without the criminal action nothing survives. Yet, somehow, this distinction has escaped the Court's attention, and it applied judgments decided in context of other laws.

The few grains that the Court does throw towards procedural safeguards, it fails to flesh out. Imagine that earlier judgments on Article 20(3) and statements to officers under socio-economic laws did not clearly say that an arrested person ought to be treated differently. Vijay Madanlal Choudhary does this much, at least, but in a rather half-hearted manner. Secondly, in refusing to share the ECIR with an arrested person, the Court finds that the clause requiring sharing grounds of arrest would do the job. It would have helped if the Court could stress upon the manner of sufficiency required in these grounds if it was treating them as a substitute for being supplied a copy of the ECIR itself. In practice, it is all too common for the agency to simply state that a person is arrested for committing a Section 3 PMLA offence, nothing more and nothing less. By fleshing out the nature of grounds, the Court could have prevented this from continuing. Now, it would fall upon the High Courts to, hopefully, breathe some life into this clause. 

A point, also, about Tofan Singh would be in order. The Court has held that the judgment was unique to the NDPS Act context and could not be extended to the PMLA. This is, undoubtedly, correct. As had been noted at the time, Tofan Singh was unlikely to provide any succour beyond the NDPS Act because of how the Court went about examining the issue then. Still, the manner in which Vijay Madanlal Choudhary suppresses the points of similarity between the NDPS Act and PMLA is rather striking. For instance, it is nowhere mentioned how the NDPS Act also has confiscation mechanisms in place, much like the PMLA.  

Assessing the Revival of Section 45 Twin Conditions

Nikesh Tarachand Shah, much like Tofan Singh, dealt with the form of a problem rather than its substance (both were authored by the same judge, incidentally). Here, that problem was the twin conditions of bail. 

The problem with Section 45, according to Nikesh Tarachand Shah, was that it imposed the restrictive bail conditions by creating an illogical classification between kinds of cases. It accepted that such conditions are legal and necessary where compelling state interests exist, but recognised that not every case of money laundering would be the same, and adopting a monetary threshold to gauge seriousness made sense. This logic of the threshold had been done away with, while at the same time multiplying the total number of scheduled offences manifold. This was a problem because the underlying offences were very different and since money laundering necessarily turned to the scheduled offence, the nature of that offence was not an altogether irrelevant factor for consideration.

Parliament's answer to this in the 2018 amendment was not to repair the classification, but to do away with it altogether. In Vijay Madanlal Choudhary, the Court correctly notes that its earlier judgment had pointed out an error with the form and not substance of the twin conditions, but it failed to identify exactly what that error was while upholding the legislative response to the perceived problem. In concluding that the legislature could remedy defects and restore the twin conditions to PMLA, Vijay Madanlal Choudhary is right. But here, the manner of resolving the defect was to completely undermine the logic of the judgment in Nikesh, which the Court chose not to appreciate. Instead, the Court endorsed, whole-heartedly, the abandoning of a classification-based approach and the application of twin conditions to all PMLA cases. For, we are reminded again, money laundering is a very serious offence. 

There is an obvious problem with that assertion, though, because unlike other crimes, at a basic level money laundering derives its seriousness from the seriousness of the underlying scheduled offence and what kind of proceeds of crime were generated there. Yes, terrorists and drug cartels might engage in money laundering and should not get bail easily is a plausible view, but the law as it works today paints these persons with the same brush as any copyright or trademark violators who may 'derive or obtain' any property by way of their violation. Such petty offences are not rendering the financial foundations and the economic integrity of the country unstable, with all due respect. To contend that these are hypotheticals unworthy of attention because the Enforcement Directorate will not waste time on such cases is not a good enough response, because a court is required to deal with the law and not how an agency may or may not choose to enforce it in its wisdom. 

This is an odious conclusion, no matter which way we look at it.

Conclusions

There are many serious problems in how the Court has justified the refusal to treat the PMLA at par with other penal laws when it comes to procedural safeguards. Vijay Madanlal Choudhary has glossed over distinctions between contexts that are gaping chasms, acting under the illusion that these are minor cracks in the edifice of its immaculate reasoning. The conclusions, at many points, are starkly incorrect on law. 

At the outset of this series, it was observed that Vijay Madanlal Choudhary is a conservative decision, inasmuch as the Supreme Court has simply remained faithful to its inglorious past of taking away all semblance of safeguards to personal liberty and property when it comes to socio-economic offences. Restrictive bail conditions in independent India first came for the essential supplies law before they became famous for anti-terror laws; reverse burdens were held good in 1964 when it came to gold smuggling; the guarantee of Article 20(3) was held inapplicable till customs officials or those from the registrar of companies concluded their inquiry given the theoretical possibility that such inquiries might, till that stage, not end in prosecution. More recently, it was okay for the accused in the 2G Scam and Coal Block cases to be denied a right of appeal.

Over time, not many people have had a problem with this growing body of law developing right under our eyes, because these were confined to specific areas of activity. Even for those with left-leaning inclinations, such laws were in fact lauded because of the detrimental impact that white-collar criminals and smugglers posed to the country. 

What the PMLA does, is that it weaves together all the restrictive, rights-effacing clauses from this illustrious past in one fine blanket, and it then goes a step further. It is not restricted to just the smuggler or hoarder, but to practically anyone. It is not old wine in a new bottle, contrary to what the title might suggest. In its reach and deleterious impact on basic freedoms, the PMLA is truly a sui generis law unlike any other. The judgment in Vijay Madanlal Choudhary was an opportunity to trim it down to size and prevent it from becoming another MISA from the 1970s; instead, the Court has, for now, green-lit that very outcome.         

Of Old Wine in New Bottles — The Judgment in Vijay Madanlal Choudhary (Part One)

After marathon hearings, the Supreme Court finally pronounced its judgment on 27.07.2022 in a batch of over 200 petitions where the legality of various provisions under the Prevention of Money Laundering Act, 2002 ["PMLA"] had been challenged. This judgment — bearing the title Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. [SLP Crl No. 4364 of 2014] for the lead matter — runs into 545 pages, but it is not a difficult read. Not because one is a cynic and the outcome was as expected, but because reading the judgment in Vijay Madanlal Choudhary is like listening to a greatest hits collection of the Supreme Court's past forays into examining the legality of socio-economic offences. 

Which is why, before getting into any analysis of this judgment, it is important that we dispel the thought that the Supreme Court has gone out of its way in this judgment to strike a blow for fundamental freedoms. It was quite the opposite — the Supreme Court merely had to remain on the path that it had chartered for more than half a century to arrive at the verdict in Vijay Madanlal Choudhary, and it happily chose this conservative path rather than adopt a radical departure from the status quo. 

In respect of the analysis itself, there are many ways in which one could go about it. Rather than taking up each issue as done in the judgment, I have divided it into two posts: the first considering the substantive offence, the second the procedural aspects and offering a summing up of the discussion.

Scheduled Offences and the PMLA

A intentionally killed B — that is a shorthand way of describing murder. If you then read A murdered B, you know what it means. Can we do the same for money laundering? A launders property — does that make sense intuitively? Folklore suggests that the idea was always about projecting tainted assets as being untainted. But even at this stage, you are in trouble, because now how does one figure out what are tainted assets? This, in a nutshell, is the peculiarity of the money laundering offence — in India, and many parts of the world, it is tied to the occurrence of prior criminal activity as a result of which some property was either derived or obtained. It is not like murder, cheating, or forgery — it criminalises what comes after.  

This is how the PMLA also operates. Money laundering, as it is understood under Section 3 of the PMLA, is not merely dealing with property, but 'proceeds of crime' which refer to the property one derives or obtains (directly or indirectly) by virtue of a 'scheduled offence'. So, unless an offence is mentioned as part of the Schedule to the PMLA, whatever happens thereafter is not the concern of the PMLA, because any property generated as a result would not be 'proceeds of crime'. 

The Supreme Court in Vijay Madanlal Choudhary has re-emphasised this filial linkage between the idea of money laundering under PMLA and the prior criminal activity that led to generating tainted assets. As a result, where the underlying prosecution goes (either on acquittal or discharge) then the money laundering case would die a natural death. So far so good. In the same breath, though, the Court has also endorsed the claim that money laundering is an independent offence when it comes to construing the guarantee under Article 20(1) of the Constitution against retrospective penalisation or enhanced punishment. The problem with this Janus-faced approach was explained, at length, in the discussion on the Prakash Industries judgment of the Delhi High Court and I won't repeat it here. To wit, both limbs of Article 20(1) are being attracted. 

Firstly, because by applying PMLA prior to 2005, or situations prior to the time when an offence was included in the schedule, means crossing the rubicon and changing the nature of property retrospectively. If the test is that the property derived or obtained from committing a scheduled offence is proceeds of crime, then in these cases at the time when I derived or obtained the property, it could not be proceeds of crime because the PMLA did not exist / offence was not part of the schedule. If I am retaining or using that property after that date, then I have not derived or obtained the property after 2005, thereby eliminating that most critical limb from the money laundering definition.

Secondly, because in effect, money laundering by its very nature is a statutory enhancement of punishment on acts that I did in the past. This is especially so where we consider property crimes — A cheated B and obtained property prior to 2005 and continued to retain that property — allowing PMLA to now operate in such cases practically sanctions this very transaction with a new punishment. By not adding that additional punishment to the offence of cheating itself but instead labelling one segment of that transaction as a new crime under a different statute, Parliament ought not to be able to sidestep a fundamental right.

(There are other issues arising from this 'PMLA is an independent offence' approach on the side of process, which will get taken up in the next post).

The Validity of the Schedule

This was not the only constitutional issue which was canvassed concerning scheduled offences. The very schedule was questioned on grounds of arbitrariness. This argument, in a sense though not so explicitly portrayed in the judgment, actually relies upon that same concept of money laundering as an independent offence. The Court does not shy away from generic remarks about the awfulness of money laundering and how it is the repose of terrorists and financial criminals. These comments, by themselves, clearly expose some kind of independent value judgment that is underlying the idea of money laundering, which finds statutory expression in how the PMLA did not get triggered by all criminal acts, but only those deigned to be included in the Schedule. 

If money laundering has an independent value as a 'wrong' in our system, which the statute chooses to only link to the offences deemed important enough to be part of the schedule, that logic cannot be undermined by simply going ahead and adding every offence in the statute book. To put it another way, if the statutory scheme displays a need for discretion in the kinds of cases associated with money laundering, then a constitutional guarantee against arbitrariness reads a necessary element of rationality in how to exercise that kind of discretion, leaving it open for a court to inquire whether or not that constitutional benchmark is being met. By adding all sorts of offences to the schedule, it was argued that this key component of reasonableness was rendered missing from the schedule as it stood today. 

The Court did not appreciate this aspect of the contention at all. Instead, it chose to simply shut shop and proclaim that any additions / deletions in the PMLA schedule expressed a legislative policy that could not be second-guessed by the Court — a rather frank note of obeisance from a constitutional court. The choice was unfortunate, and it would be surprising if other courts in the future adopt such a posture.  

'Or', 'And'

There is a lot of controversy about the reading of the 'and' in the definition of money laundering as an 'or' by the Supreme Court. Yes, words ought to mean as they should, but in this case at least there was some material led by the government (in the form of reports from the FATF) to suggest that there was an honest error in the statute. Many courts had been accepting this view even in 2013 — something that India had told the FATF  — and the Supreme Court has stamped this view with its approval. As a result, it found nothing wrong with the Explanation as well.

A 'Sui Generis' Statute? The Bridge between Substance and Procedure

Throughout Vijay Madanlal Choudhary, the Court emphasises that the PMLA is a sui generis and multi-faceted law, and not just a penal statute. Sure, it creates offences, but it also carries a large mechanism of civil processes for attachment and confiscation of property, besides casting reporting requirements on persons. The reporting obligations are ultimately linked to helping discover money laundering offences so this does not take us too far, and nor does the court press it into service much. The sui generis logic is largely premised on the existence of the attachment process. 

This reasoning is critical to how it justifies the validity of the various provisions conferring investigative powers upon the state machinery — by diluting the penal elements of the law and re-characterising the substantive nature of the PMLA, the Court is able to justify its procedural scheme which does not confer the same level of protections as other penal statutes. This, according to me, is one of the most important issues which lies at the heart of the judgment and the PMLA in general, which is why it becomes all the more important to subject this reasoning to close scrutiny.

Yes, the PMLA does have a machinery for attachment and confiscation. And, yes, this is not the first statute to provide for it (as the Court points out at the start of its analysis). However, there are differences in the PMLA and other laws on this front. 

Other laws, such as the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (central law), operate only after the criminal action was completed and use a conviction as a trigger for confiscation. Still others, such as the Orissa Special Courts Act, 2006 and Bihar Special Courts Act, 2009 (state laws), or the Fugitive Economic Offenders Act 2018 (central law) trigger attachment on based on some offence but also permit confiscation of that property independent of whatever happens in respect of the trial for that offence. 

The PMLA allows for attachment independent of any money laundering prosecution being filed, but only allows it to last for a maximum of 180 + 365 days in matters where no such prosecution is launched. And, critically, confiscation of attached assets is only permitted upon conviction for the money laundering offence. Therefore, even though civil actions may be initiated independent of criminal proceedings, the structure of the PMLA civil action is such that it must be tied to the criminal proceeding sooner rather than later.

Over the years, these linkages between the criminal prosecutions and the civil action have been watered down in the statute, often as a response to FATF reports. Nevertheless, the umbilical cord has not been cut, and without a criminal prosecution no civil action can sustain itself in the long run. In such a scenario, where the offence of money laundering is at the heart of the law, can it really be said that the PMLA is not a penal statute? 

Conclusion and Next Post

This post primarily covered how Vijay Madanlal Choudhary engaged with the offence of money laundering under the PMLA. It ended with critiquing the Court's conclusion that the PMLA is a sui generis law and not a penal statute, which renders it justifiable for the procedural safeguards  ordinarily guaranteed to defendants under penal laws to not be applicable in the PMLA context. The next post turns to the Supreme Court's engagement with these procedural aspects of the law, which is where the conservatism of the judgment really shines through.