Stuti Rai

Harini Raghupathy

The Prevention of Money Laundering Act (‘the Act’) was enacted in 2002 in accordance with India’s obligation to its international commitments to tackle the global problem of money-laundering. The main aim of the act is to prevent money-laundering by laying down special procedures for investigation, different from those provided under the Code of Criminal Procedure, 1973. As per the Act, the offence of money-laundering, requires the existence of a predicate offence and projection of tainted property earned from the proceeds of crime of a predicate offence, as untainted property. The scope of predicate offence has increased manifold, and currently from a list of 6 legislations, the list of predicate offence has increased to 30 legislations including offences under the Copyright Act and Trademarks Act. The Act also provides extensive powers of arrest and investigation to the Enforcement Directorate (a financial investigation agency under the Department of Revenue).

The earliest case challenging the provisions of the Act dates back to 2014, when the director of Zoom Developers Pvt Ltd, Vijay Madanlal Choudhary, challenged certain provisions of the Act. Subsequently, around 200 petitioners filed around 80 petitions challenging various provisions of the Act. In the beginning of 2022, the Supreme Court’s bench comprising Justice AM Khanwilkar, Dinesh Maheshwari and CT Ravikumar heard the challenge on a day-to-day basis for almost a month  and reserved it for judgment. Currently, the judgment in all these petitions is awaited, and expected to be pronounced tomorrow before the date of retirement of Justice AM Khanwilkar from the Supreme Court.

In this article, we have identified key issues which arise from the challenge and their implications for the criminal justice system at large. 

1. Regime of Special Statutes

One of the definitional and preliminary challenges raised against the Act is its broad scope, insofar as the Schedule of the Act has been amended over the years to include a variety of offences as a ‘predicate offence’. In the context of money laundering, a ‘predicate offence’ refers to an act, criminalized under any other legislation, from which proceeds are generated. Use, possession, and / or concealment (i.e. ‘laundering’ of money) of the proceeds generated from such predicate offences then becomes the subject of the impugned Act.

The Schedule to the Act currently lists a wide variety of offences as ‘predicate offences’, ranging from the serious (crimes related to narcotics trade, terrorism, explosive substances) to the more mundane (offences relating to copyrights, trademarks, and environmental pollution). This list has been challenged as being ‘overtly broad’, and a deviation from the original intent of the Act to combat proceeds arising from narcotics trade and organized crime. The crucial question, expected to be settled by the Court now, is the exceptional procedure to which any and all sorts of crimes are now being subjected.

The expansion of the Act is not an anomaly but fits well within the pattern of special criminal legislations that have come to populate the Indian criminal justice system. With almost any criminal issue that captures the national imagination, the inevitable State response is to enact a special statute to deal with the same, such as the POTA or POCSO. Little to no penological justification is given for the necessity of a special statute, which has the consequence of diluting procedural safeguards assured to an accused under the CrPC. The ubiquitous defence for removing safeguards has been two-pronged: (a) the ‘exceptional’ or ‘unique’ threat posed to the nation or its sovereignty by such offences cannot be combated by general criminal law; and (b) the exceptional procedure of such legislations has narrow scope and application.  

Judicial recognition of the ‘exceptionalism’ of offence that underlies special criminal statutes was granted in the limited context of terror offences in 1994. With the abundance of special laws however, one may begin to question if the dilution of safeguards is actually exceptional or has become the new normal. This era, in some ways, reached its epitome in the amendment of the Act in 2013, whereby a whole range of predicate offences (irrespective of their severity) are subjected to the diluted procedural safeguards within the Act.

The State, as it has argued in the present proceedings, may possess the prerogative to criminalise and develop special procedures for offences as it deems fit. However, with questions being raised regarding the extent to which such ‘exceptionalism’ and its associated dilution of safeguards can be stretched, the ball is squarely in the Supreme Court.  

2. Presumption of Innocence

One of the core principles of any criminal justice system is the ‘presumption of innocence’. Although its position in the context of the Indian constitutional scheme remains inconsistent (while some courts have recognized it as a fundamental right rooted in Article 21, other courts have merely recognized it as a human right), it threads through various aspects of the criminal procedure. Two important ways in which this right is asserted are: (a) bail; and (b) burden of proof.

Prior to conviction, bail secures the freedom of the accused who is presumed to be innocent. ‘Bail, not jail’, the pithy rule laid down by Justice Krishna Iyer, is the basic rule for investigations. The raison d’etre for this rule is that an accused is innocent until proven guilty, and thus, the deprivation of liberty that occurs by way of pre-trial detention may not be imposed, with certain exceptions where the accused is likely to abscond or interfere with the criminal investigations. Similarly, the burden of proving the guilt of an accused is put squarely upon the prosecution in ordinary criminal trials, as even during trial a person is presumed to be innocent.

With special statutes, the presumption of innocence is subverted. On the one hand, onerous conditions requiring one to prove their innocence are imposed on bail, and on the other hand, the burden of proof is reversed by placing the onus on the accused to prove their innocence during trial. Over the course of decades and multiple challenges along these lines, the Supreme Court has upheld the constitutionality of onerous conditions for bail in view of the gravity of offences charged, and similarly condoned reversal of burden clauses provided it is triggered after ‘foundational facts’ have been proved by the prosecution.

In the context of the Act specifically, however, it has been argued that presumption of innocence has been entirely inverted, and instead, a regime of ‘punishment by process’ has been incorporated. In proceedings initiated by the ED, an accused is often put in jail before the trial, and no material beyond vague ‘grounds of arrest’ is supplied to them. In such a situation, the accused is expected to participate in a pre-trial trial and prove their innocence against unknown enemies. The petitioners have additionally argued that the trial proceedings are similarly biased against the accused, as the ED is not even required to establish ‘foundational facts’.

The idea of ‘punishment by process’ is antithetical to the presumption of innocence, but is acknowledged often as an inevitable by-product of an inefficacious and overburdened system. With the Act, however, it appears to be a stated objective. The State has specifically argued that the onerous conditions are necessary in order to deter the commission of money-laundering. Using deterrence as a reason for depriving the liberty of a person whose guilt has not yet been adjudicated, blurs the line between innocence and guilt: pre-trial detention itself becomes the punishment rather than a necessity created for the needs of investigation or a fair trial.

The Supreme Court is now expected to adjudicate on the acceptance of ‘punishment by process’ before the trial, and the reversal of burden of proof without requirement of proving foundational facts. The dictum on these issues will have consequences for how far a criminal justice system can devalue the presumption of innocence, and still maintain a just, fair, and reasonable procedure.

3. Arbitrariness of Power Exercised by the State

Another important issue which the Supreme Court is seized with is – the nature and scope of the powers exercised by the Enforcement Directorate (ED). The power to investigate the offence of money-laundering is entrusted to the ED. The State argued that ED is bound by the procedure laid down under the Act and not the Code of Criminal Procedure (u/s 65). The procedures laid down in the act in relation to commencement of investigation, arrest, summons search and seizure, attachment of property etc. are in stark contrast to the procedure laid down in the Code of Criminal Procedure (CrPC). While providing the police wide powers to investigate, CrPC also provides sufficient safeguards to balance the rights of an accused person against the actions of the State.

An investigation under the Act commences at the time an Enforcement Case Information Report (ECIR) is registered. Even though the ECIR is akin to the FIR in content, a person accused of an offence under the Act is not provided a copy of the ECIR at the time of investigation. The Petitioners argued that since the individual’s liberty is at stake once an ECIR is registered, necessary safeguards should be made available to him by providing information regarding the allegations against him. Additionally, due to non-availability of the ECIR, an individual is not aware of whether he is in the character of a witness or an accused person when he is summoned u/s 50 of the Act and this in turn violates his right against self-incrimination in cases where he is compelled to provide incriminating statements.

The Petitioners argued that the Act has completely done away with the procedure of Magisterial oversight at the time of search, seizure and investigation. The main object for Magisterial oversight is to check the powers of the investigating agency. By doing away with Magisterial oversight, the ED is provided with extensive and unchecked power to investigate as per its subjective satisfaction.

Such extensive and arbitrary powers provided to the Enforcement Directorate is justified by the State by arguing that the offence of money-laundering is a sophisticated and grave offence having far-reaching implications on the country’s economy.

The Supreme Court vide the present challenge will have to assess whether such deviation in procedural safeguards envisaged by the Act and justified by the State warrants curtailment of individual’s right of liberty and fair investigation to such an extent.

Conclusion

In the last ten years, the ED has recorded almost 5500 cases under the Act and more than Rs. 1,00,000 crores worth of property has been attached. On the other hand, only twenty three persons have been convicted under the Act since the ED took jurisdiction. These statistics form the backdrop in which the Supreme Court must balance the rights of an individual accused of money laundering and the threats posed by money laundering to the economy of the country. 

As we await the verdict of the Supreme Court on the standards of proportionality of and excessive State encroachments into individual rights in the context of the Act, it is inevitable that the final holding will have serious consequences for the operation of the penal institution in India above and beyond mere money-laundering. 

Stuti Rai and Harini Raghupathy are Litigation Associates at Project 39A.