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PMLA: Supreme Court Set To Rule On Powers Of The Enforcement Directorate

A three judge bench of the top court heard the arguments for over 20-days before reserving the judgment

<div class="paragraphs"><p>Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)</p></div>
Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Proceeds of crime worth Rs 67,104 crore are at stake as several parties contest the powers of the enforcement directorate before the Supreme Court.

For over 20 days, the Supreme Court of India heard arguments challenging the constitutionality of provisions including summons, attachment and the burden of proof under the Prevention of Money Laundering Act, 2002. The statute governs investigations by the Directorate of Enforcement.

Before the apex court, the petitioners' arguments included:

  • That the safeguards present in the Code of Criminal Procedure must also be applied to the PMLA.

  • Absence of distinction between an accused and witness at the summons stage.

  • Power of the ED to attach assets.

  • Lack of a specific standard on when the burden of proof shifts on the accused.

The government has defended the PMLA provisions on grounds:

  • Since it's a special statute, it only needs to be constitutionally compliant. And not necessarily have the same safeguards as the CrPC.

  • When a person is summoned under Section 50 [summoning provision], they are not an accused.

  • Property is attached only if it's a proceed of crime.

  • Shift in burden of proof to the accused takes place only after the prosecution has established a prima facie case.

CrPC Safeguards Absent In PMLA

The right to life and liberty is guaranteed by the Constitution, and it cannot be taken away without a just, reasonable and fair procedure for investigation and prosecution of offences, the petitioners said.

These safeguards are present in the Code of Criminal Procedure,1963 but not in the Prevention of Money Laundering Act, 2002. Hence, the checks should also be built into the PMLA, the petitioners urged.

For instance, they argued, disclosure of Enforcement Case Information Report (ECIR) should have the same standards as the first information report (FIR) registered by a police officer.

Every FIR which is registered is forwarded to the jurisdictional magistrate but the copy of an ECIR cannot be obtained during the preliminary inquiry, the petitioners argued.

The central government responded by pointing to the special nature of the offence of money laundering.

Solicitor General Tushar Mehta said that the law came to be as part of the international effort to fight money laundering and the provisions should be judged in that context.

The nature of money laundering as an offence is different from the offences under the Indian Penal Code,1860, Mehta said.

He elaborated saying money laundering entails intricate layering of money through dummy companies and the offence takes place within and outside the boundaries of India. In money laundering cases, there is a potential of an accused removing even the traces of offence in order to frustrate the investigation.

The parliament, he added, made a conscious decision to not equate disclosure standards under PMLA with an FIR.

…the legislature has consciously avoided [for ECIR] the provision of registering FIR, its supply to the Magistrate and requiring the authorities to obtain warrant before effecting arrest. Any form of intimation or notice [of ECIR] will enable the accused to wipe out the evidence in a matter of literally seconds.
Submission by the Union Government

Summoning Provisions Denies Right Against Self Incrimination

Once an ECIR is registered, the petitioners argued, the ED summons the accused and his family members seeking details of all the financial transactions.

It's this power of summons under Section 50 of the PMLA that the petitioners have challenged.

The provision allows the ED to summon an accused and witnesses under the same provision and the person does not know whether they are being summoned as an accused or a witness, Senior Advocate Kapil Sibal submitted.

This procedure, as per the petitioners, violates the constitutionally guaranteed right to remain silent and the accused in also unaware of the allegations against him since the copy of the ECIR has not been supplied.

The statement recorded under Section 50 are treated admissible as evidence, the petitioners said.

The summoning provision was defended by Additional Solicitor General SV Raju who said that it passes the test of constitutionality.

The right to remain silent as guaranteed under Article 20(3) of the constitution, Raju argued, is breached only when three conditions are satisfied:

  • A person was accused of any offence.

  • The person was compelled to speak.

  • The purpose of the compulsion should be to make a person witness against themselves..

The government argued that this was not the case in the summoning provision under Section 50 as the person is not an accused at that stage.

Properties, Attachment & Proceeds Of Crime

The power of attachment exercised by the ED is also under challenge in the case.

On this, the specific challenge of the petitioners is to the emergency attachment powers of the ED which they argued allows attachment of properties which may not be proceeds of crime.

The second provision of Section 5(1) of the PMLA grants emergency powers of attachment of any property of any person when a officer not below the rank of deputy director has reasons to believe that the non-attachment is likely to hamper any proceeding under the law.

The 2nd proviso to S. 5(1) is unconstitutional or at the very least, must be read down insofar as it permits emergency attachment without anchoring the operation of the proviso to either the schedule offence or the proceeds of crime relating to that specific schedule offence.
Submission by the petitioners

In defence of the emergency attachment provision, Additional Solicitor General of India SV Raju cited certain instances where this power was exercised.

The government argued that for invoking the second proviso to Section 5(1), certain conditions need to be satisfied:

  • The property is involved in money laundering.

  • The immediate non-attachment of the property would frustrate the PMLA investigation.

Under the second provision, only when a property is proceeds of crime can it be attached, Raju argued.

Since PMLA’s enactment, the value of property, identified as proceeds of crime, is around Rs 98,368 crore. Out of which, Rs 55,889 crore was confirmed by the adjudicating authority and a substantial part was still under adjudication, government submitted in the court.

The properties attached include those of UN designated terrorist Hafiz Sayeed; Hijbul Mujahideen's Syed Salahuddin and narcotics smuggler Iqbal Mirchi.

In some other cases, for instance those of businessmen Vijay Mallya, Nirav Modi and Mehul Choksi, 66.91% of the total loss to banks (that made loans to these businessmen/their companies) was returned to them by the Enforcement Directorate, the Solicitor General informed.

Shift In Burden Of Proof Differs From Criminal Law Principles

The petitioners have also asked the court to set specific standards on when the burden of proof shifts on the accused.

Under the PMLA, the burden of proof shifts from the prosecution to the accused once the charges are framed.

Senior Advocate Abhishek Manu Singhvi argued on this point.

The threshold for the shift in burden of proof was introduced through an amendment in 2013 but that has still not cured the vice of unconstitutionality, Singhvi submitted.

…the main ingredients of the offence are required to be proved first by the prosecution before the presumption can be raised against an accused. In the absence of such safeguards, such a presumption will be violative of Article 14 [Right To Equality] and 21 [Right To Life and Liberty] of the Constitution being a violation of the right to a fair trial and the presumption of innocence.
Submission by the petitioners

On burden of proof, the government argued that the standard of ‘’proof beyond reasonable doubt’‘ has attracted criticism as it places a heavy burden on prosecution and the term is vague and not easy to define.

Section 24 of the PMLA lowers this burden of proof for the period of the trial once the charges are framed, Raju argued.

The charges are only framed when there is a prima facie case and the prosecution still has to prove the case beyond reasonable doubt for the conviction, the government submitted.

Finally, the Solicitor General also highlighted that the number of cases annually registered in India was much less than cases registered under similar laws in the U.S., the U.K., China, Austria and Russia. Further, the total number of people arrested under the PMLA stands at 331.

The low numbers, the government argued, was demonstrative of the robust mechanism of selection of cases.

The arguments were heard by a three-judge bench of the Supreme Court presided by Justice AM Khanwilkar. The bench has reserved the judgment in the case.