VIJAY MADANLAL CHOUDHARY AND PMLA

By Adv. Ram Chander Sankhla, Managing partner at Sankhla Law Associates and Former Chief Commissioner of CGST & Customs

Author can be reached at www.rrsla.com | info@rrsla.com

VIJAY MADANLAL CHOUDHARY AND PMLA.

PART I

PROLOGUE:

1. The Prevention of Money Laundering Act, 2002, (in short PMLA or 2002 Act) and it’s implementing agency, the Enforcement Directorate, (in short ED), are the talk of the town. whether it is some political figure, business-person etc. whenever the ED initiates action against them under the provisions of PMLA, the public opinion stand divided about the correctness of it. There are heated debates and discussions about the provisions of PMLA, being unduly harsh and excessive and its faulty and biased implementation. Be that as it may, the larger bench of the honourable Supreme Court, recently decided about the constitutional validity of most of the provisions of PMLA and amendment thereof in the year 2013,2015,2018 and 2019.
2. In this article, we are going to analyse these provisions and the recent larger bench judgement of three judges of Supreme Court dated 27th July 2022, 2022 in the case of Vijay Madanlal Choudhary and ors vs Union of India and ors. in SLP (criminal) no. 4634 of 2014 and other such petitions and SLP (civil) no. 28394 of 2011 and other such petitions. It would be of interest to note that, time and again, purposive interpretation has been relied upon in this particular judgment by the Supreme Court. This judgement has also discussed and differentiated the earlier, two judge, judgment of Honourable Supreme Court in case of Nikesh Tarachand Shah vs UOI and another – (2018) 11 SCC 1, where, among other, bail provisions were struck down as un-constitutional. it is relevant to mention that after the judgement in Nikesh Shah, the Parliament amended section 45 of the PMLA in 2018 so as to remove the defect noted in the said judgement and to revive the effect of twin conditions specified in section 45.
3. At the outset, it needs mention that this judgement is quite lengthy, running into more than 550 pages. However, for a student of Law and especially PMLA, it is must read. For the sake of brevity, many provisions have not been reproduced, which the reader may refer PMLA/this judgement. Also, for the sake of brevity and convenience, this article is being reported in parts.
4. In various Writ Petitions, Appeals, SLPs, Transferred Petitions and Transferred Cases, being dealt, in this particular judgement raised questions of validity of various provisions of law pertaining to Customs Act, Central Goods and Services Tax Act, The Companies Act 2013, The Prevention of Corruption Act, 1988, the Indian Penal Code, 1860 and the Code of Criminal Procedure, 1973. However, the Court kept itself confined to the challenges to the provisions of PMLA.
5. The petitioners, here-under, also challenged the amendments brought in PMLA by taking recourse to Finance Bill/ Money Bill. However, the bench, at the outset, made it very clear that the said ground of challenge will not be examined in the present proceedings as it is pending for consideration before the larger bench of this court before seven judges, in view of the reference order passed in Roger Matthew Case- (2020) 6 SCC 1. The bench however noted that if that ground of challenge is to be accepted, it may go to the root of the matter and amendments affected vide Finance Act would become unconstitutional or infective. Despite that, the challenges to the provisions of PMLA could not be put on hold for a long time as there were amendments by Parliament, post Nikesh Shah case and the defect pointed out by the Supreme Court, there under, being cured.
6. This judgement has been authored by Justice A.M. Khanwilkar, as he was then. On behalf of private parties, Mr/s Kapil Sibal, Siddharth Luthra, Doctor Abhishek Manu Singhvi, Mukul Rohatgi and other senior counsels appeared and made their submissions, whereas, Union of India was represented by Mr Tushar Mehta, Solicitor General of India and Mr SV Raju Additional Solicitor General of India.

WHY, The PMLA, 2002 Act:

7. The Act was enacted to address the urgent need to have a comprehensive legislation, inter alia, for preventing money laundering, attachment of proceeds of crime, adjudication and confiscation thereof including vesting of it in the Central Government, setting up of agencies and mechanisms for coordinating measures for combating money laundering and also to prosecute the persons indulging in the process or activity connected with the proceeds of crime. This need was felt world over due to the serious threat to the financial systems of the countries including their integrity and sovereignty because of laundering of money. These issues were debated and drafted in the United Nation Convention against illicit traffic in narcotic drugs and psychotropic substances, BASLE statement of principles of 1989, the FATF established at the summit of Seven major industrial nations in Paris in July 1989, the political declaration and noble programme of action adopted by the UN General Assembly vide its resolution number, south-17/2 of 23rd February 1990. The United Nations in the special session on countering world drug problem on 8^th to 10th June 1998 urged the state parties to enact a comprehensive legislation. This is evident from the statement of objects and reasons accompanying the bill which became the 2002 Act.
8. It may also be noted that prior to PMLA of 2002, the following legislations were already there dealing with attachment and confiscation/forfeiture of the proceeds of crime linked to certain offences, i.e. The Unlawful Activities Prevention Act, 1967, (chapter 5); The Wildlife Protection Act of 1972 (chapter 6A); The Criminal Law (Amendment) Ordinance, 1944; The Code of Criminal Procedure, 1973(chapter 34-disposal of property); The Smugglers and Foreign Exchange Manipulators (forfeiture of property) Act, 1976; the Narcotic Drugs and Psychotropic Substances Act, 1985(chapter 5A); the Prevention of Corruption Act 1988 (Section 5- 6); The Maharashtra Control of Organised Crime Act, 1999(section 20); The Anti Hijacking Act, 2016(section 19).

9. Despite all these existing legislations to deal with proceeds of crime, PMLA was specifically enacted in 2002 as a result of international commitment to deal with the menace of money laundering of proceeds of crime having transnational consequences on the financial systems of the countries. The prevention of money laundering bill was passed by both Houses of Parliament and received the assent of The President on 17th January 2003 and it came into force on 1st July 2005.

CONTOURS OF THE ACT:

10. The preamble to the Act clarified that it has been enacted to prevent money laundering and to provide for confiscation of property derived therefrom. PMLA is neither a pure regulatory legislation nor pure penal legislation. It is amalgam of several facets essential to address the scrounge of money laundering as such. In that sense, it is a sui generis legislation that is, of its own kind. It was observed that the court cannot be oblivious to the objects and reasons for inducting such a special legislation and the seriousness of the issues to be dealt with including the transnational implications. It was also made clear that the legislative intent for providing such a special mechanism to deal with the scrounge of money laundering world over will also be taken into account.
11. The broad framework of the 2002 Act is that it consists of ten chapters. Chapter I deals with the short title, extent and commencement and definitions. Chapter II deals with offence of money-laundering. Chapter III deals with the mechanism of attachment, adjudication and confiscation. Chapter IV deals with obligations of the banking companies, financial institutions and intermediaries. Chapter V is in respect of steps and safeguards to be taken for issuing summons, carrying out searches and seizures including power to arrest, presumptions and burden of proof. Chapter VI deals with the matters concerning Appellate Tribunal. Chapter VII deals with matters concerning Special Courts, Chapter VIII is regarding the Authorities under the Act and their jurisdiction and powers. Chapter IX deals with reciprocal arrangement for assistance in certain matters and procedure for attachment and confiscation of property. Chapter X deals with miscellaneous and incidental matters.
12. In terms of Section 73, the Central Government has made rules for carrying out the provisions of the Act. The said rules deal with different aspects namely: a) The Prevention of Money-laundering (the Manner of Forwarding a Copy of the Order of Provisional Attachment of Property along with the Material, and Copy of the Reasons along with the Material in respect of Survey, to the Adjudicating Authority and its period of Retention) Rules, 2005; b) The Prevention of Money-laundering (Receipt and Management of Confiscated Properties) Rules, 2005; c) The Prevention of Money-laundering (Maintenance of Records) Rules, 2005 as amended by (Fifth Amendment) Rules, 2019; d) The Prevention of Money-laundering (Forms, Search and Seizure or Freezing & the Manner of Forwarding the Reasons and Material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005; e) The Prevention of Money-laundering (the Forms and the Manner of Forwarding a Copy of Order of Arrest of a Person along with the Material to the Adjudicating Authority and its Period of Retention) Rules, 2005;  f) The Prevention of Money-laundering (the Manner of Forwarding a Copy of the Order of Retention of Seized Property along with the Material to the Adjudicating Authority and the period of its Retention) Rules, 2005; g) The Prevention of Money-laundering (Manner of Receiving the Records Authenticated Outside India) Rules, 2005; h) The Prevention of Money-laundering (Appeal) Rules, 2005; i) The Prevention of Money-laundering (Appointment and Conditions of Service of Chairperson and Members of Adjudicating Authorities) Rules, 2007; j) The Adjudicating Authority (Procedure) Regulations, 2013; k) The Prevention of Money-laundering (Issuance of Provisional Attachment Order) Rules, 2013; l) The Prevention of Money-laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013; m) The Prevention of Money-laundering (Restoration of Property) Rules, 2016 as amended by (Amendment) Rules, 2019.

DISCLAIMER:  The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the official policy or position of any other individual, organization, employer or Firm. The information provided in this article is accurate and true to the best of the author’s knowledge, but there may be omissions, errors, or mistakes. The authors shall not be liable for any damages, losses, or injuries arising from the use of or reliance on the information presented in this article. Readers are advised to verify any information provided here and to consult with appropriate professionals for specific advice tailored to their individual circumstances.

TO BE CONTINUED  : PART II & PART III