~By Abhinav Sekhri
After marathon hearings, the Supreme Court finally pronounced its judgment on 27.07.2022 in a batch of over 200 petitions where the legality of various provisions under the Prevention of Money Laundering Act, 2002 [“PMLA”] had been challenged. This judgment — bearing the title Vijay Madanlal Choudhary & Ors. v. Union of India & Ors. [SLP Crl No. 4364 of 2014] for the lead matter — runs into 545 pages, but it is not a difficult read. Not because one is a cynic and the outcome was as expected, but because reading the judgment in Vijay Madanlal Choudhary is like listening to a greatest hits collection of the Supreme Court’s past forays into examining the legality of socio-economic offences.
Which is why, before getting into any analysis of this judgment, it is important that we dispel the thought that the Supreme Court has gone out of its way in this judgment to strike a blow for fundamental freedoms. It was quite the opposite — the Supreme Court merely had to remain on the path that it had chartered for more than half a century to arrive at the verdict in Vijay Madanlal Choudhary, and it happily chose this conservative path rather than adopt a radical departure from the status quo.
In respect of the analysis itself, there are many ways in which one could go about it. Rather than taking up each issue as done in the judgment, I have divided it into two posts: the first considering the substantive offence, the second the procedural aspects and offering a summing up of the discussion.
Scheduled Offences and the PMLA
A intentionally killed B — that is a shorthand way of describing murder. If you then read A murdered B, you know what it means. Can we do the same for money laundering? A launders property — does that make sense intuitively? Folklore suggests that the idea was always about projecting tainted assets as being untainted. But even at this stage, you are in trouble, because now how does one figure out what are tainted assets? This, in a nutshell, is the peculiarity of the money laundering offence — in India, and many parts of the world, it is tied to the occurrence of prior criminal activity as a result of which some property was either derived or obtained. It is not like murder, cheating, or forgery — it criminalises what comes after.
This is how the PMLA also operates. Money laundering, as it is understood under Section 3 of the PMLA, is not merely dealing with property, but ‘proceeds of crime’ which refer to the property one derives or obtains (directly or indirectly) by virtue of a ‘scheduled offence’. So, unless an offence is mentioned as part of the Schedule to the PMLA, whatever happens thereafter is not the concern of the PMLA, because any property generated as a result would not be ‘proceeds of crime’.
The Supreme Court in Vijay Madanlal Choudhary has re-emphasised this filial linkage between the idea of money laundering under PMLA and the prior criminal activity that led to generating tainted assets. As a result, where the underlying prosecution goes (either on acquittal or discharge) then the money laundering case would die a natural death. So far so good. In the same breath, though, the Court has also endorsed the claim that money laundering is an independent offence when it comes to construing the guarantee under Article 20(1) of the Constitution against retrospective penalisation or enhanced punishment. The problem with this Janus-faced approach was explained, at length, in the discussion on the Prakash Industries judgment of the Delhi High Court and I won’t repeat it here. To wit, both limbs of Article 20(1) are being attracted.
Firstly, because by applying PMLA prior to 2005, or situations prior to the time when an offence was included in the schedule, means crossing the rubicon and changing the nature of property retrospectively. If the test is that the property derived or obtained from committing a scheduled offence is proceeds of crime, then in these cases at the time when I derived or obtained the property, it could not be proceeds of crime because the PMLA did not exist / offence was not part of the schedule. If I am retaining or using that property after that date, then I have not derived or obtained the property after 2005, thereby eliminating that most critical limb from the money laundering definition.
Secondly, because in effect, money laundering by its very nature is a statutory enhancement of punishment on acts that I did in the past. This is especially so where we consider property crimes — A cheated B and obtained property prior to 2005 and continued to retain that property — allowing PMLA to now operate in such cases practically sanctions this very transaction with a new punishment. By not adding that additional punishment to the offence of cheating itself but instead labelling one segment of that transaction as a new crime under a different statute, Parliament ought not to be able to sidestep a fundamental right.
(There are other issues arising from this ‘PMLA is an independent offence’ approach on the side of process, which will get taken up in the next post).
The Validity of the Schedule
This was not the only constitutional issue which was canvassed concerning scheduled offences. The very schedule was questioned on grounds of arbitrariness. This argument, in a sense though not so explicitly portrayed in the judgment, actually relies upon that same concept of money laundering as an independent offence. The Court does not shy away from generic remarks about the awfulness of money laundering and how it is the repose of terrorists and financial criminals. These comments, by themselves, clearly expose some kind of independent value judgment that is underlying the idea of money laundering, which finds statutory expression in how the PMLA did not get triggered by all criminal acts, but only those deigned to be included in the Schedule.
If money laundering has an independent value as a ‘wrong’ in our system, which the statute chooses to only link to the offences deemed important enough to be part of the schedule, that logic cannot be undermined by simply going ahead and adding every offence in the statute book. To put it another way, if the statutory scheme displays a need for discretion in the kinds of cases associated with money laundering, then a constitutional guarantee against arbitrariness reads a necessary element of rationality in how to exercise that kind of discretion, leaving it open for a court to inquire whether or not that constitutional benchmark is being met. By adding all sorts of offences to the schedule, it was argued that this key component of reasonableness was rendered missing from the schedule as it stood today.
The Court did not appreciate this aspect of the contention at all. Instead, it chose to simply shut shop and proclaim that any additions / deletions in the PMLA schedule expressed a legislative policy that could not be second-guessed by the Court — a rather frank note of obeisance from a constitutional court. The choice was unfortunate, and it would be surprising if other courts in the future adopt such a posture.
There is a lot of controversy about the reading of the ‘and’ in the definition of money laundering as an ‘or’ by the Supreme Court. Yes, words ought to mean as they should, but in this case at least there was some material led by the government (in the form of reports from the FATF) to suggest that there was an honest error in the statute. Many courts had been accepting this view even in 2013 — something that India had told the FATF — and the Supreme Court has stamped this view with its approval. As a result, it found nothing wrong with the Explanation as well.
A ‘Sui Generis’ Statute? The Bridge between Substance and Procedure
Throughout Vijay Madanlal Choudhary, the Court emphasises that the PMLA is a sui generis and multi-faceted law, and not just a penal statute. Sure, it creates offences, but it also carries a large mechanism of civil processes for attachment and confiscation of property, besides casting reporting requirements on persons. The reporting obligations are ultimately linked to helping discover money laundering offences so this does not take us too far, and nor does the court press it into service much. The sui generis logic is largely premised on the existence of the attachment process.
This reasoning is critical to how it justifies the validity of the various provisions conferring investigative powers upon the state machinery — by diluting the penal elements of the law and re-characterising the substantive nature of the PMLA, the Court is able to justify its procedural scheme which does not confer the same level of protections as other penal statutes. This, according to me, is one of the most important issues which lies at the heart of the judgment and the PMLA in general, which is why it becomes all the more important to subject this reasoning to close scrutiny.
Yes, the PMLA does have a machinery for attachment and confiscation. And, yes, this is not the first statute to provide for it (as the Court points out at the start of its analysis). However, there are differences in the PMLA and other laws on this front.
Other laws, such as the Smugglers and Foreign Exchange Manipulators (Forfeiture of Property) Act, 1976 (central law), operate only after the criminal action was completed and use a conviction as a trigger for confiscation. Still others, such as the Orissa Special Courts Act, 2006 and Bihar Special Courts Act, 2009 (state laws), or the Fugitive Economic Offenders Act 2018 (central law) trigger attachment on based on some offence but also permit confiscation of that property independent of whatever happens in respect of the trial for that offence.
The PMLA allows for attachment independent of any money laundering prosecution being filed, but only allows it to last for a maximum of 180 + 365 days in matters where no such prosecution is launched. And, critically, confiscation of attached assets is only permitted upon conviction for the money laundering offence. Therefore, even though civil actions may be initiated independent of criminal proceedings, the structure of the PMLA civil action is such that it must be tied to the criminal proceeding sooner rather than later.
Over the years, these linkages between the criminal prosecutions and the civil action have been watered down in the statute, often as a response to FATF reports. Nevertheless, the umbilical cord has not been cut, and without a criminal prosecution no civil action can sustain itself in the long run. In such a scenario, where the offence of money laundering is at the heart of the law, can it really be said that the PMLA is not a penal statute?
Conclusion and Next Post
This post primarily covered how Vijay Madanlal Choudhary engaged with the offence of money laundering under the PMLA. It ended with critiquing the Court’s conclusion that the PMLA is a sui generis law and not a penal statute, which renders it justifiable for the procedural safeguards ordinarily guaranteed to defendants under penal laws to not be applicable in the PMLA context. The next post turns to the Supreme Court’s engagement with these procedural aspects of the law, which is where the conservatism of the judgment really shines through.
[The author is a criminal lawyer based in New Delhi. This article first appeared on his blog, ‘The Proof of Guilt’]