SC ruling on ED powers waters down criminal law

The fundamental principle of the rule of law is that a person’s right to liberty cannot be denied without a fair, just and reasonable procedure established by law. Another principle is also well established: the law must prevail over every person and every authority in the country. With these two thoughts in mind, we propose to analyze last week’s judgment of the Supreme Court upholding the constitutionality and reaffirming the validity of various provisions of the Prevention of Money Laundering Act 2002 (PMLA) .

In doing so, the Supreme Court essentially reversed its 2017 decision in the Nikesh Tarachand case. This judgment found that the provisions of the PMLA Bail Act were excessive and unconstitutional on grounds of arbitrariness and lack of due process. However, the Supreme Court of India, in its latest judgment of July 27, 2022, not only diluted some safeguards built into the search and seizure provisions, but also placed the PMLA on a pedestal as a specialized code that does not does not respect all the principles of the Code of Criminal Procedure.

In addition, the Supreme Court reaffirmed the broad definition of “money laundering” by giving full play to provisions that cover every process or activity undertaken by any person. India’s top court has faced a deluge of cases arguing that powers conferred and exercised by prosecuting agencies were unconstitutional.

The following points present the main argument and the subsequent conclusions of the Supreme Court:

Money Laundering Offence: When the law came into effect, to prove the money laundering offence, the prosecution had to establish not only that the accused concealed and was in possession of proceeds of crime, but also that the person projected the same as intact property. The Supreme Court, considering a 2012 amendment to the Act to bring the Indian regime in line with the recommendations of the Intergovernmental Financial Action Task Force (FATF), held that the projection of the proceeds as intact property was not no longer a sine qua non and that mere possession and concealment would suffice. Further, the court clarified that the offense of money laundering is triggered only if there are proceeds of crime resulting from criminal activity related to a prescribed offence. In the absence of proceeds of crime, the authorities cannot initiate any proceedings. This does not preclude authorities from initiating seizure and confiscation of proceeds of crime as a stand-alone process.

Reaffirmation of the double condition of bail: Section 45 of the PMLA provides for a double condition for the granting of bail: (i) the possibility for the prosecutor to oppose it; and (ii) the court’s reasonable satisfaction that the accused is not guilty where the bail application is challenged by the prosecution. In the Nikesh Tarachand case, the Supreme Court struck down these twin terms in 2017, finding them unconstitutional as they violated Articles 14 and 21 of the Constitution.

In 2018, however, Parliament amended this provision. The recent Supreme Court judgment makes the distinction that the earlier judgment concerned offenses punishable by more than three years’ imprisonment, and as this defect has been removed by Parliament, the judgment would not apply. The main reasons that weighed on the court were: (i) compelling state interest; and (ii) it is a distinct category of offenses which requires effective and rigorous measures.

The application of section 45 of the law is not only manifestly arbitrary, since it reverses the burden of proof, but the double standard applies even to early bail. Search and seizure powers are similar, as even without any credible evidence, the Directorate of Law Enforcement (ED), which is the prosecuting body for PMLA cases, can proceed based on the information available. that give rise to a reasonable belief of wrongdoing.

The Enforcement Case Information Report (ECIR) and the admissibility of evidence before the ED: The court held that it is not mandatory for the ED to provide the accused with an ECIR, as it is an “internal document” of the ED created before initiating criminal proceedings. In addition, any statement recorded by the Branch is admissible in evidence, as DE officers are not police officers within the meaning of the Act.

These two provisions are insufficient safeguards to guarantee a fair investigation. It is even more difficult for a person applying for bail to be unaware of the substance of the charge for which he is being held.

In upholding the constitutionality of the PMLA, the Supreme Court strengthened the hands of the ED. In doing so, however, the Court diluted certain well-established principles of criminal law. There is no longer any obligation to prove fundamental facts and the safeguards against the excessive use of the powers granted to the ED in matters of arrest, search or seizure are insufficient.

However, it is worth mentioning that over time, successive governments have tightened the provisions of the PMLA, a process that was only halted by the 2017 Supreme Court ruling in the Nikesh Tarachand case.

Yash Johri and Satatya Anand, partners at Cyril Amarcand Mangaldas, contributed to this article. These are the personal opinions of the authors.

Gauri Rasgotra is a partner at Cyril Amarcand Mangaldas

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