SC ruling on PMLA: A point widely missed

The Supreme Court’s recent decision in a batch of 241 petitions challenging various provisions of the Prevention of Money Laundering Act (PMLA) has generated strong reactions from various quarters. Much has been written suggesting that the judgement weakens civil liberties in the country.

The three-member bench’s judgement has upheld most of the provisions of PMLA which had been challenged. Thus, it has held that the use or possession of proceeds of crime will amount to money laundering -- a quick reading of Section 3 of the PMLA will highlight the significance of this aspect of the judgement. This section, which defines money laundering, states that “whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering” (emphasis added).

The thrust of the argument of the petitioners was that the Section imposes two conditions, the argument being that only if someone were to project the proceeds of crime as untainted would the action fall within the definition of money laundering. The Supreme Court has, however, held that the expression “and” occurring in Section 3 has to be construed as “or”. This is a significant interpretation that, in effect, knocked the wind out of the petitioner’s arguments.

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The other aspect which the judgement has emphasised is that the twin conditions for grant of bail, namely that the accused is not guilty of the offence and that he is not likely to commit any offence while on bail, have to be fulfilled (Section 45 of PMLA) before bail can be considered. This obviously places a very stiff onus on the magistrate. Incidentally, a similar twin condition test for grant of bail is also there in the NDPS Act.

Other observations of the court relate to the powers to the officers of the Enforcement Directorate (ED) relating to search, seizure, attachment of property, summons, the validity of statements made to them, and that the copy of the Enforcement Case Information Report (ECIR) need not be shared with the accused, and that the burden of proof is on the accused.

The thrust of this article is, however, not on these aspects of the judgement which are being extensively discussed, but on some other observations of the SC that have not got the attention they deserve.

The court has emphatically held that the authorities cannot prosecute any person on a notional basis -- on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial, including by way of criminal complaint. The court goes on to say that if the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the court of competent jurisdiction, there can be no offence of money laundering against him.

This is significant, because by way of a 2019 amendment to the PMLA, an explanation had been added to the Section concerned. Section 44 (which for good measure mentions that it is “for removal of doubts”) explains that the jurisdiction of the Special Court dealing with a PMLA offence “shall not be dependent upon any orders passed in respect of the scheduled offence…”

The authorities have since been interpreting the explanation to mean that action under the PMLA is independent of the action initiated under the scheduled acts and can continue irrespective of the fate of the action under the scheduled acts. This is a welcome clarification on the nature of the explanation.

The ED should, in the light of the Supreme Court order, consider relooking at the standard operating procedure regarding initiation of action under PMLA -- should it await the outcome of action launched under the scheduled acts before acting under PMLA?

The list of scheduled offences has grown dramatically, from six in 2002 when PMLA was introduced, to 30 now. It runs the whole gamut of offences from serious offences to the not-so-serious (Protection of Plant Varieties & Farmers Rights Act), Air (Prevention & Control of Pollution) Act, Biological Diversity Act). The increase in scheduled offences has increased the applicability and reach of the PMLA. There is a case for the Enforcement Directorate to relook at the list of scheduled offences so that they can focus on the more serious offences. Undoubtedly, as submitted by the government to the court, only a small number of cases are taken up for investigation. Out of more than about 33 lakh predicate offences registered by law enforcement agencies, only 2,086 cases are said to have been registered under PMLA.

The other observation of note is the SC emphasising the need to fill up the vacancies in the Appellate Tribunal -- the apex court has made similar observations in the past in respect of other tribunals, but to no avail.

The judgement is a validation of the extensive powers vested with the ED. Money-laundering is a nefarious activity which, in turn, fuels other criminal activities. There is no doubt that a powerful law is needed to curb this menace. However, it should not be forgotten that “with great power comes great responsibility”. And in the meantime, next time you ask for tea and biscuits, remember you may get either tea or biscuits only.

(The writer is a former chairman of the Central Board of Indirect Taxes & Customs)