The Supreme Court upheld the validity of the Prevention of Money Laundering Act: Basics Explained

The Supreme Court delivered its judgment on a batch of pleas challenging the various provisions of the Prevention of Money Laundering Act (PMLA). The Supreme Court on upheld the validity of the Prevention of Money Laundering Act (PMLA).

        The court also upheld the contested powers available to the Enforcement Directorate. The Supreme Court held that relevant safeguards have been provided, and these provisions are not manifestly arbitrary. A bench of Justices AM Khanwilkar, Dinesh Maheshwari, and CT Ravikumar, hearing a batch of 241 petitions, said the parties seeking bail can move to the appropriate forum.

The petitions were concerned with the interpretation of the Prevention of Money Laundering Act, 2002.

The petitions raised multiple issues including one of the absences of procedure to commence investigation and summoning and the Accused is not made aware of the contents of the Enforcement Case Information Report (ECIR).

However, the court observed that the question of enactment of amendments in 2019 to PMLA Act as a money bill has to be decided by a larger bench of seven judges before whom the same question is already pending.

The following provisions of the PMLA were challenged before the Court:

Sections 5 and 8(4) which grant the ED wide discretionary powers to attach the property of the accused—are challenged as arbitrary for violating safeguards meant to protect the accused.

Section 17 grants the ED wide powers to enter and search suspected property without judicial permission.

Along with Section 19 which grants the power of arrest to the ED, and Section 24 which presumes guilt of the accused until it is disproved, these provisions were challenged for exempting the ED from following the rules of criminal procedure.

Section 45 of the Act which takes away the presumption of innocence usually afforded to accused persons under criminal law.

To be granted bail, the accused must prove prima facie that they were not guilty, and satisfy the Court that they will not commit any further offence. These ‘twin bail conditions’ under PMLA are central to this case. Interestingly, the SC declared this provision unconstitutional in Nikesh Tarachand Shah v Union of India (2017). The Union government then amended the provision in 2018. The ED claimed that this amendment brought the provision in line with Nikesh Tarachand Shah. The petitioners argued that the amendment undermined the Judgment, and re-established the original twin conditions.

Section 50  allows the ED to compel the accused to make self-incriminating statements under threat of a fine, and was challenged for violating the fundamental rights of the accused under Article 20 of the Constitution. The petitioners contended that the investigation agencies effectively exercise police powers and should be obligated to follow the CrPC while conducting investigations.

Crucially, since the ED is not a police agency, statements made by the accused to ED members in the course of an investigation can be used against the accused in judicial proceedings.

The use of a Money Bill such as the Finance Act, 2019 to give the ED such excessive powers. The process for passing a Money Bill does not require the assent of the Rajya Sabha, leaving less scope for debate.

The statute of Money Laundering i.e., the Prevention of Money Laundering Act, 2002 has been enacted to combat money laundering in India. It has the following three aims:

To prohibit and control money laundering;

To provide for the confiscation and seizure of property obtained through money laundered; and

To deal with any other issue connected with money laundering in India.

              The money obtained through illicit means cannot be used as one’s own economic asset and requires a cleansing of sorts. The legitimization of the money received as gains from an illegal act brings us to the concept of money laundering.

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