Vijay Madan Lal Chaudhary v. Union of India
Kirti Sharma
Bhagat Phool Singh Mahila Vishwavidyalaya
This Case commentary is written by Kirti Sharma, a Second-Year law student of the Bhagat Phool Singh Mahila Vishwavidyalaya
REVIEW PETITION (CRL) NO. 219/2022 PENDING BEFORE THE HON’BLE SUPREME COURT
Date of Judgement: July 27, 2022
Judgment Type: Constitutional Bench Judgement
Type of Bench: Three-Judge Bench
Judges: Justice A.M Khanwilkar, Dinesh Maheshwari, C.T Ravikumar
Petitioner: Vijay Madan Lal Chaudhary
Respondent: Union of India
INTRODUCTION
In Madan Lal Chaudhary Ors. Vs. Union of India the Supreme Court on July 27, 2022, addressed the issue which revolves around the cental issue challenging the constitutional validity of some of
the provisions of the Prevention of Money Laundering Act 2002 (PMLA). The case arose from a
petition filed by the petitioner in the Supreme Court of India where the petitioner raised some of the issues challenging the provision of the said Act which includes provisions related to bail, arrest,
burden of proof, and power of ED. Before this court dealt with one such similar issue of twin
conditions of bail in Nikesh Tarachand Shah vs. Union of Indiai[ (2018) 11 SCC 1] Section 45
twin condition of bail was challenged and struck down as being violative of articles 14, and 21 of the
Constitution which was earlier revived through the Finance Act/ Money Bill 2018 laid the
foundation for challenging the various provisions of the said Act and raised the question of whether
the provisions are unconstitutional or not. This decision is significant as it not only
emphasizes the stringent and continued measures to be taken to combat the menace of money
laundering adhering to the Vienna Convention. This case helped in giving a clear picture of the fact that the said Act not only restricts the power of the ED but also protects the rights of an
individual and strikes a perfect balance between both. This commentary will first address the
issues in brief along with the court findings followed by the facts, then arguments from both the petitioner and respondent sides followed by a court decision, and last but not least analysis of the same and then a conclusion.
Facts:
1. Background of PMLA
Prevention of Money Laundering Act ((PMLA) was formulated in the year 2002 and has undergone many changes over time. The PMLA was enacted in response to
India’s global commitment (Vienna Convention) to combat money laundering.
2. Why did the Act become an eye of controversy?
This Act became the eye of controversy when various amendments were made in the
provisions of the act through the money bill in 2019. This controversy was dealt with in Rojer Mathew vs South Indian Bank2.
Issues:
The major issues in Vijay Madan Lal Chaudhary vs. Union of India are
1. Burden of proof
When a person is accused of having committed the offense under section 3, the burden of
proving that proceeds of crime are untainted property shall be on the accused, so it was argued
that in criminal cases it is on the prosecution. SC held that section 24 has a reasonable nexus with the purposes and objects sought to be achieved and cannot be regarded as manifestly arbitrary or unconstitutional. [Para 351]
2. Whether offence under S.3 is a standalone offence?
Whosoever directly or indirectly attempts to indulge or knowingly assists or is a party or is involved in any process activity or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of the offense of money laundering.
3. Statements by the accused to ED
Section 50 empowers the investigating officer to summon and record the statements of the
persons concerned and also to make a note or inventory of such records or property. At the stage of issue of summons, the person cannot claim protection under Article 20(3) of the constitution. However, if his/her statement is recorded after a formal arrest by the ED official, the
2 Case available at https://indiankanoon.org/doc/36423291/
Consequences of Article 20(3) or Section 25 of the Evidence may come into play to urge that the same being in nature of confession, shall not be proved against him.
4. Whether nonsupply of ECIR violative of Article 21 of the Constitution?
ECIR (Enforcement Case Information Report) cannot be equated with FIR and ECIR is an
internal document of Ed, hence Supply of ECIR is an internal document of ED, hence Supply of ECIR to the accused is not mandatory and only discloser of reasons doing the arrest is enough.
5. Attachment of property involved in money laundering
Section 5(1) of the Act empowers the Director or Deputy Director to provisionally attach a property attach a property for 180 days (about 6 months) if he has ‘reason to believe’ that;
a) any person is in possession of the “proceeds of crime”
b) such “proceeds of crime” are likely to be concealed, transferred, or dealt with in any manner
which may result in frustrating the proceedings related to the confiscation of such proceeds of crime.
Thus, the suspected proceeds of crime can be seized from the profession of a person irrespective of the fact that whether the person had been indulged in any money laundering process or whether it was he who has or has not acquired,” the proceeds of crime”.
However, some provisos have been inserted in the Act which try to limit the discretionary powers of the Officers.
5. Twin Condition of Bail
This issue raised in this regard is whether grant of bail with dual conditions violates the fundamental rights and constitutional rights of a person as the offences would differ with the circumstances
where grant of bail has nothing to do with the offence therefore this twin condition of bail under section 45 violates Article 14, 21 of the Constitution
Contention of petitioner
1. The procedure followed by ED in registering ECIR is opaque, arbitrary, and violative of the constitutional rights of the accused.
2. He pointed out that the entire burden of proof right from the investigation to judgment was on the accused although it was amended but not fully cured this section of 78.
3. It has been urged that section 45(1) of PMLA reverses the presumption of innocence at the stage of burden of proof.
4. It has also been argued that section 50 infringes the right to liberty of a person summoned under this Act.
5. Definitions under sec 3 read with sec 21(1)(u) are meant to cover scheduled offenses but they are being swept even with non-schedule offenses.
Contention of respondent
1. The offense of money laundering requires the proceeds of crime to be mandatorily projected or claimed as untainted property
2. It was stated that participating countries under the Vienna Convention were under
obligation to ensure proper legislation to combat the menace of money laundering and to utilize relevant international anti-money laundering initiatives.
3. As per the United Nations Convention against Corruption, the participating countries
conduct enhanced scrutiny of accounts and maintained by politically exposed persons to implement measures to monitor the movement of cash and other instruments.
4. The burden of proof is not against the constitution as the state often faces issues to prove due to its nature of governance.
5. ED officers are not police officers and thus protection does not apply to them same.
Judgment
1. SC held that section 24 has a reasonable nexus with the purposes and objects sought to be achieved and cannot be regarded as manifestly arbitrary or unconstitutional. [Para 351]
2. SC said that “We clearly view that the expression “and” occurring in section 3 has to be constructed as “or”, to give full play to the said provision to include “every” process or activity indulged into by anyone,”
Dependent on the wrongful and illegal gain of property as a result of criminal activity relating to a scheduled offense. The property must qualify the definition of “proceeds of crime” under S.2 (1) (u) will necessarily be crime properties. [Para 281]
A wider reach and capture of every process and activity, direct or indirect, in dealing with the proceeds of crime and is not limited to the happening of the final act of integration of tainted property in the formal economy. [Para 301]
3. It was argued that ED officials are not police officers. Statements made by accused ED officials are not hit by Article 20 (3) which lays down the rule against self-incrimination.
At the stage of issue of summons, the person cannot claim protection under Article 20(3) of the constitution. However, if his/her statement is recorded after a formal arrest by the ED official,
the consequences of Article 20(3) or Section 25 of the Evidence may come into play to urge that the same being in nature of confession, shall not be proved against him.
4. SC held that section 5 of PMLA is constitutionally valid
Conclusion
It has been concluded that the provisions made under the PMLA Act 2002 follow the Vienna
Conventions and a perfect balance between the powers and protecting the rights of individuals. Also, these strict rules help in combating the menace of money laundering and various heinous crimes
associated with it. Which can impact society in very dangerous ways. Crimes like drug dealing, and human trafficking require very stringent measures. As far as the burden of proof is concerned it does not infringe the rights of an individual if the burden of proof is on prosecution it will become difficult because of the secretive nature as people involved in such crimes use complex methods
to hide its origin and twin condition ensures that the accused cannot be released easily and “or”
replaced with “and” provides a wider scope to the definition and it has been questioned that the powers of ED are unlimited but the proviso under this provision limits the powers of ED and it has been also that not to take ED as police officer as the roles of both are somewhat different. In the event of evidence, only the statement made by the party will be treated as evidence.
References
1. State of Punjab vs. Barkat Ram https://indiankanoon.org/doc/1090657/
2. Nikesh Tarachand Shah vs Union of India https://indiankanoon.org/doc/117859307/
3. Rojer Mathew vs South Bank of India.https://indiankanoon.org/doc/36423291/
4. State of Gujrat vs Shyamlal Mohan Lal Choski https://indiankanoon.org/doc/1861858/ 5.Gold Croft Properties (P) Ltd. V. Enforcement Directorate