How the Supreme Court's verdict can open the floodgates of investigation under PMLA

The recent Supreme Court judgment on the PMLA has settled some issues, but others remain ambivalent, a former ED legal adviser writes.
Enforcement Directorate, PMLA
Enforcement Directorate, PMLA

The recent judgment of the Supreme Court upholding the Constitutional validity of the Prevention of Money Laundering Act (PMLA) has settled some issues, but others are still ambivalent.

The notable inference from the verdict is that PMLA has been introduced and amended in India due to external compulsions without looking into the domestic law.

A crucial outcome of this verdict benefitting the citizens is that an offence under Section 3 of the PMLA is not a stand-alone offence; the myth of "stand-alone" is thus demystified.

The other benevolent findings are as follows:

  • At least an FIR under the scheduled offence and existence of the proceeds of crime are sine qua non for prosecution under PMLA.

  • Possession under Section 8(4) cannot be taken after confirmation of the attachment and it can be done only under exceptional circumstances. However, the “exceptional circumstances” are not enunciated and is subject to the discretion of the officer.

The issues affecting citizens are as follows:

  • Copy of Enforcement Case Information Report (ECIR) need not be supplied to the person summoned or arrested under PMLA.

  • Twin conditions for bail under Section 45 are revived.

  • Property can be attached under PMLA without any scheduled offence.

  • Statements recorded under Section 50 of PMLA are not hit by Article 20 of the Constitution.

  • An offence under PMLA is a continuing offence.

The reasons given by the Supreme Court for holding that the Enforcement Directorate (ED) need not supply a copy of the ECIR to the accused appears to be against the principles of equity, fair play and reasonableness. A person gets the copies of the FIR containing the scheduled offence, but is denied the ECIR. Further, the person is not entitled to the same even after arrest under the PMLA. As a result, he has to languish in jail awaiting the provisional attachment order, which is a great injustice.

The revival of twin conditions under Section 45 of the PMLA makes the grant of bail a Himalayan task. The silver lining is that Section 436A of the Code of Criminal Procedure (CrPC) is made applicable, which enables the person to get bail at least after three-and-a-half years.

As per para 60 of the judgment, attachment under PMLA can be done without a pre-registered scheduled offence. The only requisite is that the authorised office has to contemporaneously seek information under Section 66(2) of the Act from the jurisdictional police. This observation goes against the basic tenet of Section 5(1)(a) of PMLA, where the existence of proceeds of crime is a pre-condition. Further, this confers a non-existent power to investigate a scheduled offence on a prima facie basis. ED officers can only enforce the Foreign Exchange Management Act (FEMA) and PMLA, and not any other offences. The Supreme Court on the one hand has stated that it is the legislative prerogative to include an offence as a scheduled offence under the PMLA, and on the other hand, goes against the Act passed by the Parliament without ascribing any reasons. The discussions in para 60 are not found in the conclusion part of the judgment. Hence, it can be inferred as being only an obiter.

A case under the PMLA is initiated after the registration of the scheduled offence. More often that not, it is done on the basis of the FIR itself. One wonders whether it is legal to initiate an ECIR on the basis of only FIR, which is only an allegation on a prima facie basis. The Supreme court itself has held that an FIR is not an encyclopaedia. Further, a chargesheet itself is only a perception of the investigating officer. Hence, it is felt that registration of ECIR on the basis of FIR is bad in law, as no finality regarding the scheduled offence can be inferred.

Further, on registration of the FIR, a person becomes an accused and a case under PMLA is registered on the basis of this FIR. Does he lose the character of an accused? Definitely not. Hence, statements recorded under Section 50 of the PMLA are hit by Article 20(3) of the Constitution of India.

It is seen from para 43 of the judgment that PMLA is stated to be a continuing offence. This finding, coupled with the conclusion at para (v) (a) wherein it has been held that the Explanation to Section 3 is only clarificatory, is a death knell to retrospectivity. A person who has committed the scheduled offence and convicted before the PMLA came in to force can be roped in under PMLA, as per this observation. I feel that this will open the floodgates for investigation under the PMLA and also a Pandora's Box. There is no specific decision on retrospectivity in this judgment and the views are based on the paras discussed.

The most anxious question is that when the introduction of the amendment by way of the Finance Bill is itself pending before a Constitution Bench of the Supreme Court, how can those amendments be interpreted?

I trust that these issues will be conclusively decided by the larger bench. Till then, it is a free-for-all.

G Sureshbabu is a retired legal adviser to the Enforcement Directorate. Views are personal.

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