‘The process has become a punishment unto itself under PMLA’, counsel tells Supreme Court

“LAW lives not only in text but also in the application of our lives. The process has become a punishment unto itself”, senior advocate Dr Menaka Guruswamy told the Supreme Court on Wednesday while mounting a challenge against the various provisions of the Prevention of Money Laundering Act [PMLA] for being violative of Articles 21 and 20(3) of the Constitution of India.

Guruswamy began her submissions on Wednesday and concluded them today.

A three-judge bench comprising Justices A.M. Khanwilkar, Dinesh Maheswari and C.T. Ravikumar is hearing a batch of petitions concerning the interpretation of the various provisions of the PMLA and their validity on the touchstone of the Constitution.

Speaking on the abysmal track record of the Directorate of Enforcement [ED], Guruswamy told the bench that ED conducted 1,700 raids and 1,569 specific investigations with rates increasing by 20 per cent every year, and then doubling and tripling since 2011, and yet it could secure conviction only in nine cases. She added that what the agency has been able to secure in hundreds and hundreds of cases has been the attachment of property, arrest, months of scheduled and unscheduled interrogation, seizing of properties, signing of papers, and self-incrimination, resulting in a violation of well-established constitutional principles.

The bench, however, observed that a low conviction rate cannot be ground to attack the validity of legislation.

Guruswamy was appearing for the Chief Executive Officer of a company, whose house, along with other assets, were attached by the ED in March 2017 through a provisional attachment. She broadly argued:

  • The provisions of the PMLA must stand the test of due process under Article 21 of the Constitution.
  • Section 50(powers of authorities regarding summons, production of documents and to give evidence, etc) of the PMLA, infringes upon the right to liberty of persons summoned under the Act and violates the right against self-incrimination.
  • Section 44(1)(d) of the PMLA creates irreversibly prejudices the accused the trial adjudicating the predicate offence.
  • The PMLA creates an overbroad offence with no fetters on investigatory powers.

Section 50(2) of the PMLA allows for the summoning of any person for the purpose of giving evidence. Section 50(3) compels such a person to answer truthfully. Non-compliance with section 50(3) is penalized through Section 63 of the PMLA. Such statements are admissible.

Attacking the validity of Section 50(2), Guruswamy argued that the use of the term ‘any person’ without the exclusion of the accused violates enforceable due process. She relied upon the 2012 decision of the Supreme Court in the Ajmal Kasab case, in which it had held that protection to the accused against any self-incrimination guaranteed by the Constitution is very strongly built into the Indian statutory framework. The Court also held that right against self-incrimination under Article 20(3) is fully incorporated in the provisions of the Criminal Procedure Code [CrPC] (Sections 161162163 and 164) and the Evidence Act, as manifestations of enforceable due process and thus, compliance with these statutory provisions is also equal to compliance with the constitutional guarantees. She thus contended that section 50(2) of PMLA does not incorporate safeguards provided by the CrPC and the Evidence Act against self-incrimination.

She added that while accused persons under the regime of the CrPC can access first information reports and cannot be compelled to state the truth, the ED can compel individuals to provide statements without any requirement of disclosure regarding their status as accused. She argued that the right of the accused under Article 20(3) cannot be ignored in the pre-complaint stage.

In addition, Guruswamy pointed out that the PMLA encourages ED officers to entrap the accused by utilizing the non-disclosure of the Enforcement Case Information Report [ECIR]. Further, the Act allows ED officers to conduct sweeping interrogations aimed at justifying the summons issued to accused persons. This, she submitted, amounts to a perverse incentive structure for constitutional infringements which can only be eradicated by protecting the accused from unfettered interrogations under the threat of punishment.

On the validity of section 44(1)(d) of PMLA, which requires the trials to both the predicate and laundering offences to be conducted before the Special Court, but as separate trials, Guruswamy contended that the predicate offence is an ingredient to the offence alleged under the PMLA, and the ED obtains evidence by compelling the accused, which would include facts regarding the predicate offence. The combination of both trials before the Special Court creates an absurdity of the judge dealing with two different sets of rights for the same accused regarding connected facts. She added that section 44, in its current form, takes away the right of appeal for predicate offences triable by magistrate’s courts, and condemns the accused by exposing the judge to the evidence in the PMLA trial that should be inadmissible before the judge in the predicate offence. This procedure, she argued, is not in conformity with fair procedure.
Guruswamy also flagged the unfettered powers that the ED exercises. She submitted that apart from ED’s routine refusal to provide a copy of the ECIR, a deliberate opacity operates surrounding the usage of the ED Manual, which provides guidelines for investigatory processes. Referring to Section 4(b)(v) of the Right to Information Act, Guruswamy submitted that it is an obligation of every public authority to publish within 120 days from the enactment of the Act the rules, regulations, instructions, manuals and records, held by it or under its control or used by its employees for discharging its functions. In contradiction to the said provision, the ‘Manual’ governing the ED Officials for discharge of their functions remains a mystery for the general public.

She submitted that the ED manual is relevant for the accused to secure their pre-trial rights by ensuring the compliance of the manual if such compliance is in consonance with the rights of the accused. This non-disclosure, she argued, creates a distinct ground for procedural arbitrariness against the scheme of investigation under PMLA.

She argued as to how the Schedule to the PMLA renders several bailable offences as non-bailable. In this context, she contended that the overbroad nature of the offences that are listed as scheduled offences under the PMLA also results in offences that were listed as bailable offences, effectively becoming non-bailable offences.

Predicate offenses such as those under the Bonded Labour System (Abolition) Act are available. By contrast, Section 45 of the PMLA holds that offenses under the Act are non-bailable. This means that the intent and provisions of the underlying special Act are rendered otiose by the overbroad provisions of the PMLA, she argued. This, she said, effectively grants the State the discretion to invoke the PMLA and bypass the provisions of the predicate act, which itself is constituted of the main offense.

On the ED’s attachment power, Guruswamy argued that it runs contrary to provisions in statutes containing the predicate offence. She submitted that Section 5 of the PMLA authorises attachment of property involved in money laundering prior to the concerned individual’s conviction. She gave an example of the Securities and Exchange Board of India Act, which provides for attachment of property only after the conviction of the accused. She thus contended that PMLA creates two different standards or two different criminal attachment proceedings for essentially the same offense.

“In cases where the standard to attach property under the parent act may not be met, authorities have the option to pursue the action through the PMLA Act. Such provisions are therefore overly broad”, she submitted.

Guruswamy also drew the Court’s attention to the dysfunctional appellate tribunal which ought to work under the PMLA. The Act provides for the PMLA Appellate Tribunal that has been put in place as an oversight mechanism to prevent abuse of the mechanism for attachment.

“However, even this has been rendered useless by what can only be described as a strategic assault on this solitary safeguard whereby the State has deliberately neglected to appoint a Chairperson and Members to the Tribunal”, she submitted. She added that since the last Chairperson of the Appellate Tribunal (Justice Manmohan Singh) retired in September 2019, there has been no Chairperson appointed since.

“At the same time, as the members of the Appellate Tribunal retired, no appointments were appointed in their place. From 2019 to the present date, the Tribunal has been effectively non-functional as there has been no chairperson and only one member who has been functioning as an acting chairperson”, she submitted.

Guruswamy argued that attachment provisions of the PMLA in respect of alleged proceeds of crime are contrary to the well-established legal principle of ‘innocent until proven guilty’.

Senior Advocate Aabad Ponda made submissions regarding the validity of section 50(3) of the PMLA. This Section makes it mandatory for all the persons summoned by the ED to state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required. Ponda argued that section 50(3) PMLA takes away the constitutional right of an accused to remain silent.

“If ED summons a person, one is bound to appear. Once I appear, I am coerced to confess, otherwise, I am arrested or my remand is extended on the ground that I am not operating”, Ponda submitted.
Referring to section 63 of PMLA, Ponda submitted that if an accused does not answer a question, he can be fined under the Act. He contended that there is no element of voluntariness – a facet of Article 20(3) in the PMLA.

In addition, he endorsed what had been argued by senior advocates Kapil Sibal and Dr Abhishek Manu Singhvi on preceding days on the validity of these provisions.

On Wednesday, senior advocate S. Niranjan Reddy argued that money laundering is “parasitic” and hence cannot arise if there is no scheduled offense and/or if there are no proceeds of crime. He added that it is only when proceeds of crime are sought to be projected as clean money, the separate offense of money laundering arises.

Section 43(2) PMLA provides that while trying an offence of money laundering the Special Court shall also try any other offence. Section 44(1) clarifies that the scheduled offence shall also be tried by the Special Court trying the money laundering offence. Reddy thus submitted that the questions have arisen with regard to the manner and sequence of conducting these two cases. He pointed out that while the accused have argued that the money laundering offence can only be tried subsequent to the scheduled offence, the Jharkhand High Court and Kerala High Court have taken a view that it is not necessarily a requisite that the money laundering offence be kept back until the conclusion of the trial of the scheduled offence. He added that in appropriate cases both matters can be tried simultaneously.

He pointed out that the Kerala High Court further clarified that the result of the money laundering offence would necessarily be dependent on the result of the scheduled offence. However, the Telangana High Court has taken a view in one of the matters that the money laundering offence being a special offence is completely independent of the scheduled offence and the trial of the money laundering offence must precede the trial of the scheduled offence.

Reddy thus urged the Court to clarify what sequence the Special Court must conduct the trials in. He argued that it would be counter-intuitive to convict the accused of money laundering first, since there was a chance of acquittal in the predicate offence.

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