CASE BRIEFING: VIJAY MADANLAL CHOUDHARY & ORS. versus UNION OF INDIA & ORS.
Case Title and Citation
Factual Background
This batch of petitions challenged the validity and interpretation of several provisions of the Prevention of Money-Laundering Act, 2002 (PMLA). Petitioners argued that the procedure followed by the Enforcement Directorate (ED) during inquiry and investigation was violative of constitutional mandates. Key provisions challenged included the definition of “money-laundering” (Section 3), the powers of arrest (Section 19), the application of the reverse burden of proof (Section 24), and the strict twin conditions for bail (Section 45). The challenge to Section 45 was brought after Parliament amended the provision in 2018 to revive the twin conditions, following their earlier declaration as unconstitutional by the Supreme Court in Nikesh Tarachand Shah. The Court explicitly reserved the question regarding the validity of amendments enacted via the Finance Act/Money Bill for examination by a Larger Bench
Issue(s)
1. Whether the expressions “proceedings” and “investigation” in the PMLA are required to be given an expansive meaning to include the inquiry procedure followed by the ED authorities, the Adjudicating Authority, and the Special Court.
2. Whether the definition of “offence of money-laundering” under Section 3 of the PMLA covers every process or activity connected with the proceeds of crime, and whether the Explanation inserted in 2019 is merely clarificatory.
3. Whether Section 5 of the PMLA, providing for the provisional attachment of property, is constitutionally valid.
4. Whether the deletion of the proviso to sub-section (1) of Section 17, and the provisions of Section 18 regarding searches and seizures, are unconstitutional.
5. Whether the provisions of Section 19 of the PMLA relating to the power of arrest are arbitrary and unconstitutional.
6. Whether the condition of reverse burden of proof contained in Section 24 of the PMLA is arbitrary or unconstitutional.
7. Whether the twin conditions for bail stipulated in the amended Section 45(1) of the PMLA are unconstitutional and violative of Articles 14 and 21 of the Constitution.
Decision of the Supreme Court
The Supreme Court upheld the constitutional validity of the challenged provisions of the PMLA. The Court specifically held that the twin conditions under the amended Section 45 of the PMLA are reasonable and have a direct nexus with the purposes and objects of the Act.
Reason for the decision
1. Nature of the PMLA: The PMLA is a self-contained code, possessing regulatory, preventive, and penal aspects, enacted to establish a strict framework to address the global menace of money-laundering.
2. Definition of Money Laundering (Section 3): The expression “and” occurring in Section 3 (connecting involvement in proceeds of crime with projecting/claiming property as untainted) must be construed as “or” to give the provision full effect. This ensures that “every” process or activity connected with the proceeds of crime, such as concealment, possession, or use, constitutes the offense of money-laundering on its own. This construction aligns with India’s international obligations.
3. Twin Bail Conditions (Section 45): The Parliament was competent to remove the defects (classification based on sentencing) identified by the Court in Nikesh Tarachand Shah by amending Section 45 in 2018, thereby reviving the twin conditions. The twin conditions are necessary as economic offences constitute a class apart, involving deep-rooted conspiracies and posing a serious threat to the financial health and sovereignty of the country. These conditions are reasonable restrictions and are mandatory in addition to limitations under the CrPC.
4. Arrest Procedure/ECIR: The power of arrest under Section 19 is upheld, as adequate safeguards are provided, requiring the high-ranking officer to record reasons for belief in writing before making an arrest. Supply of a copy of the Enforcement Case Information Report (ECIR) to the person concerned is not mandatory; it is sufficient if the ED discloses the grounds of arrest, complying with Article 22(1).
5. Burden of Proof (Section 24): The reverse burden of proof is a rule of evidence and does not render the provision unconstitutional. This shifting of the burden has a reasonable nexus with the objectives of the Act, provided the prosecution first establishes the foundational fact of the “proceeds of crime”.
6. PMLA Trial and Scheduled Offence: The trial of the money-laundering offense under the PMLA is not dependent upon any orders passed in respect of the scheduled predicate offense. However, if the person is finally discharged/acquitted of the scheduled offense, there can be no offense of money-laundering against him.
Conclusion
The Supreme Court rejected the substantive challenges to the PMLA provisions, holding them to be constitutionally valid and essential for combating the serious menace of money-laundering. The rigorous enforcement mechanism, including mandatory twin conditions for bail and the ability to investigate and attach property without necessarily filing the ECIR, was affirmed as being in line with India’s international obligations and the protection of the nation’s financial integrity.
