PMLA : Questions Raised By Supreme Court About ED's Powers While Hearing Plea To Reconsider 'Vijay Madanlal Choudhary' Decision

Last week, the Supreme Court, while hearing a batch of applications seeking reconsideration of its Vijay Madanlal Choudhary ruling, flagged certain issues regardingthe powers and discretion of the Enforcement Directorate.

A bench of Justices Sanjay Kishan Kaul, Sanjiv Khanna, and Bela M Trivedi was hearing several petitions questioning the soundness of the Vijay Madanlal Choudhary ruling, which was delivered last year in July. The petitioners called for this verdict to be referred to a larger bench, arguing that its interpretation of the Prevention of Money Laundering Act (PMLA) was neither aligned with international covenants on money laundering nor in accordance with our constitutional principles. Despite the petitioners, led by senior advocates Kapil Sibal and Abhishek Manu Singhvi, arguing extensively about the unconstitutionality of the PMLA provisions that were upheld by the Vijay Madanlal bench, the court ultimately directed the dissolution of the special bench headed by Justice Kaul. This was owing to the Centre’s request for a deferment and Justice Kaul’s impending retirement during the winter recess. Nevertheless, during the course of the hearing, the bench voiced certain concerns over the Vijay Madanlal judgment, its interpretation of the anti-money laundering statute, and the conduct of the Enforcement Directorate.

Can ED invoke PMLA using Section 120B IPC when criminal conspiracy does not relate to a scheduled offence?

Justice Sanjiv Khanna observed that the Enforcement Directorate cannot invoke the Prevention of Money Laundering Act against an accused citing Section 120B (criminal conspiracy) of the Indian Penal Code, if the alleged conspiracy is not related to a scheduled offence under the PMLA. This remark was made after the petitioners alleged that the central agency is applying the anti-money laundering statute “through the backdoor” to income tax evasion cases by invoking Section 120B of the Indian Penal Code, despite the non-inclusion of the Income Tax Act in the PMLA scheduled offences.

"If the Enforcement Directorate says that by adding 120B added to a non-scheduled offence, cognisance can be taken under PMLA for the registration of an ECIR, then I have an issue," Justice Khanna said, even while acknowledging that Section 120B was a stand-alone offence.

“Unless parent offence is included, S 120B standalone will not make it a money laundering offence," Justice Khanna emphatically clarified.

Whether PMLA will be hit by double jeopardy if mere possession or generation of proceeds of crime is held to be money laundering?

Justice Khanna also pointed out the need to examine whether the PMLA provisions would be hit by the principle of double jeopardy on grounds of being a ‘second offence’ arising out of the same allegedly criminal conduct. This was in the context of the interpretation that the generation of the proceeds of crime, without any further action, by itself, will be an offence of money laundering. Based on this interpretation, the Supreme Court held in another case that taking bribe is also an offence of money laundering, since proceeds of crime are generated and possessed through bribery. Justice Khanna said that in the Manish Sisodia case, this interpretation was doubted.

Justice Khanna said during the hearing -

“Whether it is a second offence, whether it will be hit by double jeopardy will have to be examined. I pointed that out in another case(Manish Sisodia). In Vijay Madanlal, there is a contradiction emerging in certain sections, where generation of money is held to not be covered by the PMLA. But generation of money will always lead to possession, it cannot be without possession.”

Solicitor General Tushar Mehta, however, contended that the impact of an offence penalised under a particular statute on the economy could be wider, which is why it was then sought to be brought within the net of the PMLA.

Agreeing, Justice Khanna said, “What Mr Mehta said is perfectly applicable as far as Arms Act is concerned for instance. You may only be tried for the arms recovered, under the Arms Act, but you can use the arms to extract money etc etc.”

Although the judge expressed doubts over certain aspects of the Vijay Madanlal Choudhary judgment, at the same time, he questioned the petitioners’ argument that it was per incuriam inasmuch as it did not consider an earlier decision striking down Section 45 of the PMLA, as it stood before an amendment in 2018. He said –

“Your argument is: What was struck down as manifestly arbitrary was a stringent condition, but that has now been increased…Earlier it was three years, but now after its increase, the three-judge bench has upheld it despite the two judges' opinion…But, a three-judge bench could have taken a different view. The fact is, the legislature re-enacted the law. The statement of objects and reasons may not have specified the reason. But the reason, what they probably felt, was to do away with the lacuna pointed out by the court, rightly or wrongly…”

Regarding burden of proof, attachement before trial.

Other than this, he also pointed to an August 2022 decision relating to the Benami Transactions Prohibition Act 2016, in which the Supreme Court expressed concerns about Vijay Madanlal Choudhary’s ratio, allowing the taking possession of the property before trial in exceptional circumstances. “This decision by a coordinate bench of three judges has dealt with continuing offence and doubted Vijay Madanlal on certain aspects. That will also have to be kept in mind,” Justice Khanna said.

Further, he added –

“There's also an issue regarding the shifting of onus. You'll have to answer that as well.”

The judgment in Vijay Madanlal Choudhary, delivered in July 2022, upheld the ED's powers relating to arrest, summoning, search and seizure and the stringent bail conditions and the reversal of the burden of proof under the PMLA. Both a review petition and a separate batch of applications seeking its reconsideration are currently pending before the top court. In August 2022, while issuing notice on the review petition, the Supreme Court had observed that at least two aspects of the judgment required a revisitation- the ruling that the copy of ECIR need not be given to the accused and the upholding of the presumption of guilt.

Case : Directorate of Enforcement v. M/s Obulapuram Mining Company Private Limited | Criminal Appeal No. 1269 of 2017 and connected cases.