Vijay Madanlal Choudhary, the Continued Boldening of the Enforcement Directorate, and the Threats to Citizens’ Rights

Mihir Wagh

Introduction

The Prevention of Money Laundering Act 2002 is a piece of legislation which attempts, among other things, to help reduce the prevalence of money laundering, and to repossess any ill-gotten gains of money laundering. The first of its kind in India, it was introduced in order to combat threats against the Indian financial systems, and to fight the menace of money laundering. In order to achieve its goals, the Act provides for stringent measures, which empowers the Enforcement Directorate (ED), the agency responsible for investigating complaints under the Act, with sweeping powers. These sweeping powers of the (ED) have now come under greater scrutiny, as well as constitutional challenges. In light of the Vijay Madanlal Choudhary judgement, in which, among other provisions, the Supreme Court upheld the Enforcement Directorate’s arbitrary and restrictive powers pertaining to both search & seizure, and the twin conditions required to be satisfied by an accused charged under the act while seeking bail, this article analyses parts of the judgement which could lead to the liberties of citizens come under threat.

The Enforcement Directorate and the Prevention of Money Laundering Act

As the primary investigative agency under the PMLA, the ED has a vast scope of powers, which include the powers of “arrest, attachment, and search and seizure”. When the Act was introduced, it was stated by Yashwant Sinha, the then Minister of Finance, that the Act would only deal with the most serious of infringements, requiring a “predicate offense” before PMLA could be enforced. However, amendments to the Act have changed this. Safeguards put in the Act to make sure that powers conferred on the ED were only used in the most essential of circumstances have now been repealed. This has resulted in a vastly more powerful ED, which may, if so instructed, infringe upon the rights of the people.

The powers of the ED were reaffirmed and boldened, when the Supreme Court, in the case of Vijay Madanlal Choudhary v Union of India, upheld some of the most controversial, debated upon, and explicit powers of the ED granted through the PMLA.

The Court would uphold 

• Section 5 – which gives the ED the power to attach the property involved in money laundering, including that of a bona-fide purchaser of the property;
• Section 8(4) – which gives the ED the power to possess the attached property, and the power to hold said property until and unless the accused is acquitted;
• Section 17 – which provides the ED with the power to carry out a search even without the existence of an FIR in the underlying offence;
• Section 19 – which provides the powers of arrest to the ED;
• Section 24 – which shifts the burden of proof on the accused, and requires the accused to prove that he was not involved in the crime of money laundering, and any proceeds he received were not a result of money laundering;
• Section 45 – which stipulates the twin conditions an accused must satisfy to get bail. The conditions are- the Public Prosecutor has been given an opportunity to contest the bail application, and upon hearing the objections of the prosecutor, the court must be satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail;
• Section 50 – which provides the powers of the directorate summons, production of documents and to give evidence.

In light of the verdict, it becomes prudent to examine some of the more impactful sections, and critically analyse the rationale of the Court behind upholding these sections. This article will examine the sections pertaining to seizure of assets and the twin conditions required for bail in detail.

Search and Seizure – Sections 17 & 18

The powers of search and seizure conferred upon the ED, through the PMLA, are broad and wide ranging. Initially, the Act contained inherent protections. However, these were repealed in 2019. The statute now provides for the Deputy Directors or the Director, with “reason to believe” to authorize the search of any property; break open safes or almirahs; and seize any record found in such a search. While it is undeniable that such wide-ranging powers have been granted to the ED to combat the scourge of money laundering, there is an argument to be made that these powers are, perhaps, too wide ranging. In the last decade, the ED has attached Rs. 1,00,000 crores worth of property and 5,500 cases under the Act, it has only managed to secure 23 convictions. While the accused  tries to prove his innocence, due to the provisions of Section 24 (reverse burden of proof), the property in question remains attached by the ED, irrespective of the guilt of the accused. This severely deprives him of the right to enjoy his property. As there are no provisions for the accused to contest such an attachment, the accused must wait until he is acquitted to enjoy his property again. While the case can, and should, be made for the seizure of property in cases where it is justified and prima facie it appears that a crime has been committed, handing the ED the power to attach property after merely registering a complaint against the accused, with no remedy for the accused, should be amended to provide some respite to the accused.

Further, unlike the provisions of search and seizure stipulated in the Code of Criminal Procedure (Section 93), here the Deputy Directors or the Director do not need a warrant from a court, and may issue orders for search and seizure with a mere “reason to believe” (albeit in writing). While, the Supreme Court, in Matajog Dobey vs H. C. Bhari, would opine that if the correct procedure is not followed while procuring a warrant, then the evidence so obtained becomes diminished, and even inadmissible in some cases, it has been held that this will not be applicable to the PMLA. The Court in Vijay Madanlal Choudhary, explicitly stated that an act like that of the PMLA cannot be compared to the CrCP and as it is a stand-alone act, the provisions of CrPC will not apply. The Supreme Court, while upholding, Section 17 of the PMLA, opined that that those issuing search orders “are not only high-ranking officials, but have to be fully satisfied that there is reason to believe on the basis of information in their possession”, and that “the 2002 Act is a special self-contained law” (para 311) which has mechanisms to address frivolous searches. This has the potential to be misused. It is not inconceivable that the ED could be weaponized, which would, in the absence of clear guidelines for searches, allow for individuals to be targeted by those in power, and be subject to arbitrary search and seizure. While it is true that “only high-ranking officials” may authorize a search, the fact that there is no judicial oversight remains. As the authority responsible for conducting the investigation, the ED should not have sole control in deciding searches and seizures. There is indeed a requirement for some judicial oversight, to make sure the investigation is as impartial as possible. While the Court opines, agreeing with the arguments of the State, that there are indeed sufficient checks and balances, this is no longer the case. The Act does not sufficiently protect those who have been accused under it.

Bail – Section 45

Perhaps the most impactful, and the part containing some of the most wide-reaching consequences, the judgement also spoke on the conditions required to get bail. Governed by Section 45 of the PMLA, the conditions, known as the twin conditions, they state that first a public prosecutor must be allowed to contest the bail application, following which the one seeking bail must prove they are not likely to commit a crime while on bail; and must provide reasonable grounds they are not guilty of the crime they have been accused of. While the twin conditions were decried unconstitutional in Nikesh Tarachand Shah v. Union of India, this bench of the Supreme Court seems to disagree with the ruling in Nikesh Tarachand Shah. In its observations, the Court noted that crimes like that of money laundering were “serious offence(s)”, and that “stringent measures are provided in the 2002 Act”, and those “connected with the proceeds of crime as a separate class from ordinary criminals” (para 315). The Court seems to favour more stringent conditions for bail. By stating that those who commit crimes connected to money laundering are “a separate class from ordinary criminals”, it seems that the Supreme Court seeks to impose a distinction between the crimes relating to money laundering, and of other crimes. The Court holds that that harsher provisions for those accused under the PMLA are justified, as the crime of money laundering is a serious crime. However, by accepting the twin conditions, and contravening Nikesh Tarachand Shah, the Court is seemingly of the view that the twin conditions are necessary to combat the menace of money laundering. This puts an undue burden on the accused, as he would now have to not only wait for the public prosecutor to oppose his bail, but to prove to a reasonable extent that he is not guilty. These conditions impose significant restrictions on the accused, who may not even be a guilty of a crime. While the use of such conditions is present, and has been upheld by the Court in other acts, the presence of such conditions has been specifically held to be unconstitutional for this Act. Further, the Supreme Court, in Satender Kumar Antil vs Central Bureau Of Investigation, has held that the presumption of innocence is a cardinal part of criminal law, and that bail, as a general rule, should be preferred over jail. While it is undeniable that the holdings of that judgement cannot be applied to the case at hand for the differences in circumstances, it still does signify that bail shouldn’t be denied to those who require it. The Court would, in that case, also state that “in a democracy, there can never be an impression that it is a police state, as both are conceptually opposite to each other” (para 6). This rationale must be extended towards the ED as well, and the twin conditions must not be imposed on an accused seeking bail.

The current position of the Court is concerning, for the hurdles involved for an accused to post bail, due to the twin conditions, are extremely restrictive. It should not be on the accused to provide reasonable grounds that they are not guilty of a crime, merely while asking for bail. While it is undeniable that, in some cases, a restrictive approach in the grant of bail is justified, such cannot be held, and should not be held for each and every accused charged under the PMLA. In Nikesh Tarachand Shah, while quoting Gurbaksh Singh Sibbia v. State of Punjab, the Supreme Court stated that “a presumably innocent person must have his freedom to enable him to establish his innocence” (para 19). This principle has not been effectively followed in Vijay Madanlal Choudhary. 

Conclusion

While it is absolutely undeniable that the Prevention of Money Laundering Act was introduced with to fight the scourge that is money laundering, and to protect national interests with subsequent amendments and judicial interpretations, the Act has been diluted of the safeguards required to protect the liberties of citizens. Initially possessing a lot of checks and balances on the authority (ED) designated to investigate the alleged instances of money laundering, today, these checks and balances have evaporated, leading to an Enforcement Directorate with tremendous power and authority. The powers of the ED, especially the to hold assets until acquittal, and the provision in place for the twin conditions required for bail (endorsed by the Supreme Court in Vijay Madanlal Choudhary) hamper the liberties of citizens and of the accused. The provision allowing the ED to hold assets until acquittal effectively cripples the ability of the accused to access the asset, and such a hold on assets can be done without a warrant as well. This effectively allows the ED to, if it were instructed to, indefinitely hold the assets of somebody, without judicial overwatch. This, combined with the twin conditions, effectively requiring the accused to prove his innocence merely to post bail, significantly increase the possibility of misuse, and serve to frustrate the accused. These provisions must be reworked, so as to provide the accused a fair way to defend himself. In light of the judgement, it becomes pertinent to discuss the flaws with the Act in its current form, and the unchecked powers conferred on the ED. The Supreme Court, the final guarantor of rights, in this case, did not sufficiently protect the rights of people. The law, in its current state, has the potential to be blatantly misused, especially by those in power, as the Supreme Court has already warned, to oppress those who dare oppose them. The law in its current state must be scrutinized and improved upon, so as to return to the original purpose of the law- to fight money laundering, while not infringing on the rights of the people.

The author is a second-year B.A., LL.B. (Hons.) student at the Gujarat National Law University, Gandhinagar.