Supreme Court reviews PMLA decision on bail and ED powers.

SUPREME COURT TO REVIEW PMLA ACT

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Context: The Supreme Court is set to review its decision on key provisions of the Prevention of Money Laundering Act, 2002 (PMLA).

Background

On July 27, 2022, the Supreme Court of India delivered a landmark judgment in the case of Vijay Madanlal Choudhary v/s Union of India. The Court upheld several key provisions of the Prevention of Money Laundering Act (PMLA), 2002.

Vijay Madanlal Choudhary v/s Union of India case ruling was significant for several reasons:

Bail Provisions

●Strict Conditions: The Court upheld the PMLA provisions that enforce strict bail conditions for individuals accused of economic crimes. This includes a reversal of the usual presumption of innocence, making it harder for the accused to secure bail.

●Impact: This decision means that individuals charged under the PMLA face more rigorous requirements to prove their innocence before being granted bail, reflecting a tougher stance on economic offences.

Enforcement Directorate (ED) Powers

●Statement on Oath: The Court upheld the powers of the ED to record statements under oath from individuals. These statements can be used as evidence in court.

●ECIR Not Required: The ruling confirmed that the ED is not required to provide a copy of the Enforcement Case Information Report (ECIR) to the person arrested. This is a significant shift from traditional police practices where accused individuals receive documentation of the charges against them.

●ED's Role: The Court’s decision highlighted that the ED operates differently from regular police forces, focusing on investigating and prosecuting financial crimes without the same procedural requirements.

Review Petition

A month after the judgment, on August 25, 2022, a three-judge bench of the Supreme Court, led by Chief Justice N.V. Ramana agreed to review the decision. The bench noted that at least two issues in the petition merited consideration.

Grounds for Review

Bail Provisions
- - Issue: The Supreme Court's judgment supported provisions in the PMLA that place a burden on the accused to prove their innocence when seeking bail. This decision was controversial because it requires individuals to prove they are not guilty without access to essential documents such as the FIR, charge sheet, or case diary.
  - Petitioners’ Argument:
    - Lack of Documents: Petitioners argue that without access to the crucial documents, accused individuals are at a disadvantage. They cannot effectively challenge the evidence or prove their innocence before the Special Court.
    - Fairness Concerns: The inability to review the documents can hinder the accused's ability to mount a proper defence, which could be seen as unfair and prejudicial.
  - Powers of the Enforcement Directorate (ED)
    - Issue: The Supreme Court upheld the ED’s authority to record statements under oath, which can be used as evidence in court. The Court ruled that the ED is not classified as a “police officer” and therefore is not required to provide the Enforcement Case Information Report (ECIR) to the arrested person.
    - Petitioners’ Argument:
      - Penal Powers: The petitioners argue that the Court did not adequately consider the implications of the ED’s extensive powers, which may include penal authority. They believe that this oversight could affect the fairness and legality of the investigative process.
      - Fairness and Transparency: There are concerns that the lack of requirement to provide the ECIR to the accused compromises transparency and fairness in the investigation process.

Process of Judicial Review

Finality of Supreme Court Judgments

Supreme Court Rulings: The decisions made by the Supreme Court are considered final and binding. This means that once the Court has issued a judgment, it generally cannot be appealed or overturned through ordinary legal channels.

Article 137 of the Indian Constitution

Review of Judgments: Article 137 of the Indian Constitution provides a mechanism for the review of Supreme Court judgments. This allows for the correction of errors in the Court's decisions, ensuring that justice is served.

Review Petition

Filing Period: A review petition must be filed within 30 days of the pronouncement of the judgment. This strict timeline ensures that reviews are conducted promptly.
Procedure: Reviews are conducted through written submissions rather than oral arguments. This means that the petitioners and respondents submit their arguments and evidence in writing.
Judges Involved: Only the judges who delivered the original verdict will review the petition. This ensures consistency in the interpretation of the law and the original reasoning of the judgment.

Grounds for Review

The Supreme Court reviews its judgments on very limited grounds. These include:

Grave Errors: These are significant mistakes that lead to a miscarriage of justice. For instance, if the Court's decision was based on a misunderstanding of critical facts or legal principles.
Mistake Apparent on Record: This involves clear errors that are apparent in the face of the judgment. These are not subtle errors but are glaring and obvious mistakes.

Prevention of Money Laundering Act 2002 (PMLA)

The Prevention of Money Laundering Act, 2002 (PMLA) is designed to combat money laundering and manage the confiscation of property derived from such illegal activities. This Act was passed by the Parliament and came into force on 1st July 2005.

Objectives of PMLA

Prevent and Control Money Laundering: The primary goal is to prevent the practice of disguising illegal funds as legitimate.
Confiscate Property: It allows the government to seize and confiscate property that has been acquired through money laundering.
Address Related Issues: The Act also deals with other matters connected to money laundering in India.

Key Provisions

Punishment for Money Laundering: Individuals convicted under this Act face imprisonment from 3 to 7 years. In cases involving serious offences like those related to narcotics, the sentence can extend up to 10 years.
Attachment of Property: Officials of the Enforcement Directorate (ED) with the rank of Deputy Director or higher can provisionally attach property believed to be the proceeds of crime for up to 180 days. This action must be confirmed by an independent Adjudicating Authority.
Adjudicating Authority: Appointed by the central government, this authority decides whether attached property is linked to money laundering. It operates with flexibility, guided by natural justice principles rather than strict procedural rules.
Burden of Proof: Under PMLA, the accused must prove that the property in question is legally obtained, shifting the burden of proof from the prosecution to the defence.
Appellate Tribunal: The body, appointed by the Union Government, hears appeals against orders from the Adjudicating Authority and other authorities under the Act. Its decisions can be appealed in higher courts.

Enforcement Directorate (ED)

●Established in 1956 as the "Enforcement Unit" within the Department of Economic Affairs, the ED has evolved significantly since then.

●The ED is tasked with investigating economic crimes and violations of foreign exchange laws. It currently administers several laws, including:

Prevention of Money Laundering Act, 2002 (PMLA)
Foreign Exchange Management Act, 1999 (FEMA)
Fugitive Economic Offenders Act, 2018 (FEOA)
Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA)

The ED is now administered by the Department of Revenue under the Ministry of Finance, reflecting its expanded role and responsibilities in handling serious economic offences.

Concerns and Criticisms

Enforcement Directorate (ED) Powers: The ED, though not classified as a police agency, has extensive powers to issue arrest warrants, make arrests, and conduct raids. The selection of cases for investigation by the ED lacks transparency, leading to concerns about potential misuse of power.
Burden of Proof: The Act makes bail difficult for those accused of money laundering, placing the burden of proving innocence on the accused rather than the prosecution. Critics argue this imbalance is unfair and undermines the principle of presumption of innocence.
Low Conviction Rate: The conviction rate under the PMLA is very low, below 5%. This has led to criticisms that the Act’s enforcement often serves as a form of punishment in itself, with assets being seized even before a conviction is secured.
Property Attachment Protections: Although the Act theoretically provides protections against wrongful property attachment, these protections are often ineffective in practice. They do not always allow for reasonable exceptions needed to maintain personal dignity or livelihood during ongoing cases.

Way Forward

Enhancing Transparency and Accountability

Clear Guidelines for Investigation: Establish clear and transparent criteria for selecting cases for investigation by the Enforcement Directorate (ED) to prevent misuse of power. This can help build public trust and ensure that investigations are focused on significant financial crimes.
Judicial Oversight: Strengthen judicial oversight over the ED's actions, including property attachment and arrest powers. Regular reviews by an independent body or judicial authority can ensure that the ED's actions are justified and in line with legal standards.

Reforming the Burden of Proof

Balancing the Burden of Proof: Reconsider the burden of proof requirements under PMLA. Shifting some responsibility back to the prosecution to prove the illegality of assets could help balance the rights of the accused with the objectives of the Act.
Improving Bail Provisions: Reform bail provisions to ensure that they do not unduly restrict personal liberty. This could include setting clearer guidelines for bail decisions and ensuring that they are fair and consistent.

Increasing the Efficiency of the Legal Process

Expediting Trials: Implement measures to expedite trials and reduce delays. This can include setting up special courts or fast-track processes for handling money laundering cases to ensure timely justice.
Improving Conviction Rates: Address the factors contributing to the low conviction rate. This might involve better training for investigators and prosecutors, improved evidence-collection methods, and more rigorous judicial processes.

Strengthening Protections Against Misuse

Clear Safeguards: Introduce additional safeguards to prevent the misuse of the Act for political or personal gain. This can include stricter checks and balances, such as oversight by independent bodies or regular audits of the ED's activities.
Protection for Whistleblowers: Create mechanisms to protect whistleblowers who expose the misuse of the PMLA or related corruption. Encouraging transparency and accountability within the enforcement agencies can help prevent abuse of power.

Enhancing Public Awareness and Education

Awareness Campaigns: Conduct public awareness campaigns to educate citizens and businesses about the provisions of the PMLA and their rights. This can help in ensuring compliance and reducing instances of inadvertent violations.
Training Programs: Implement training programs for law enforcement, judicial officers, and legal professionals to improve their understanding of money laundering issues and the application of the PMLA.

Promoting International Cooperation

Global Standards: Align the PMLA with international standards and best practices in combating money laundering. This includes cooperating with international financial institutions and participating in global anti-money laundering initiatives.
Information Sharing: Strengthen mechanisms for sharing information and intelligence with international counterparts. Enhanced cooperation can aid in tracking and prosecuting cross-border money laundering activities.

Periodic Review and Amendments

Regular Assessments: Conduct regular reviews of the PMLA to assess its effectiveness and identify areas for improvement. This can involve soliciting feedback from stakeholders, including legal experts, civil society, and enforcement agencies.
Legislative Reforms: Based on these reviews, make necessary amendments to the Act to address emerging challenges and to adapt to changes in the financial and legal landscape.

Conclusion

The Supreme Court's decision to review the PMLA verdict aims to ensure justice and legality in its judgments. The focus is on correcting errors in the original judgment, especially regarding bail provisions and ED powers. This review will clarify and possibly amend the application of PMLA, affecting the prosecution of economic offences and the protection of individual rights.

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PRACTICE QUESTION

Q. The Prevention of Money Laundering Act (PMLA) has undergone several amendments. Evaluate the effectiveness of these amendments in strengthening the anti-money laundering regime in India. Are there any areas where further legislative reforms are required?