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Prevention of Money Laundering Act, 2002: SC upholds validity of the stringent twin-conditions for bail amongst other provisions and says it is enough if Enforcement Directorate discloses grounds at the time of arrest

A Constitution Bench of the Supreme Court of India on 27th June, 2022, while deciding a batch of over 200 petitions challenging certain provisions of the Prevention of Money Laundering Act, 2002 (“PMLA”) relating to the power of arrest, attachment, and search & seizure conferred upon the Enforcement Directorate (“ED”), as well as in relation to the reverse burden of proof and the two-conditions for the grant of bail under the PMLA, has upheld the constitutional validity of all these provisions. The Supreme Court has given a broad interpretation to the provisions of the PMLA, thereby granting unfettered and wide powers to the ED for the purpose of conducting investigation under the PMLA. A very brief synopsis of the main findings / observations rendered by the Supreme Court are set out below:

Re: Twin Conditions for Bail under PMLA

Significantly, in relation to the “twin-conditions” for grant of bail contained in Section 45 of the PMLA, the same being (i) that the Public Prosecutor has been given an opportunity to oppose the application for such release; and (ii) that where the Public Prosecutor opposes the application, the court is required to be 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; the Supreme Court has upheld that the same as legal and not arbitrary, and has observed that the said provisions (as applicable post amendment of 2018), are reasonable and have a direct nexus with the purposes and objects sought to be achieved by the PMLA and does not suffer from the vice of arbitrariness or unreasonableness. 

Re: ED Officials are not police officers

Further, the Supreme Court holding that ED officials under PMLA are not police officers as such, rendering these officials outside the purview of several constitutional safeguards offered to the accused. This is based on the Court’s findings that the process envisaged by Section 50 of the PMLA is in the nature of an inquiry against the proceeds of crime and is not “investigation” in strict sense of the term for initiating prosecution. Basis this, the Court has held that the statements recorded by ED officials under Section 50 of PMLA are not hit by Article 20(3) of the Constitution of India, which guarantees the fundamental right against self-incrimination, and the provision prescribing a penalty for giving false information and/or failure to give a statement does not suffer from any arbitrariness. 

Re: Supplying the Enforcement Case Information Report (“ECIR”) is not mandatory 

Further, the Court has held that, in view of special mechanism envisaged by the PMLA, an ECIR cannot be equated with an FIR under the Code of Criminal Procedure, 1973. As per the Supreme Court, the ECIR is an internal document of the ED and the fact that FIR in respect of scheduled offence has not been recorded does not come in the way of the ED officials to commence inquiry/investigation for initiating “civil action” of “provisional attachment” of property being proceeds of crime. Therefore, supply of a copy of ECIR in every case to the person concerned is not mandatory, and it is enough if ED at the time of arrest, discloses the grounds of such arrest.

However, the Court has also held that when the arrested person is produced before the Special Court, it is open to the Special Court to look into the relevant records presented by the authorised representative of ED for answering the issue of need for his/her continued detention in connection with the offence of money-laundering.

Re: Scope of the offence of money laundering under Section 3 of the PMLA

Rendering a broad interpretation to Section 3 of PMLA, the Supreme Court has held that the offence of money-laundering 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 was of the view that the expression “and” occurring in Section 3 has to be construed as “or”, to give full play to the said provision so as to include “every” process or activity indulged into by anyone. The Supreme Court accordingly rejected the interpretation suggested by the petitioners, that only upon projecting or claiming the property in question as untainted property that the offence of Section 3 would be complete, and held that projecting or claiming the property as untainted property would constitute an offence of money-laundering on its own, being an independent process or activity.

A more detailed update will be provided once we have had the benefit of perusing the judgement.

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