Crime proceeds worth Rs 67,104 crore are at stake as several parties contest the powers of the Enforcement Directorate before the Supreme Court.
For more than 20 days, the Supreme Court of India heard arguments challenging the constitutionality of provisions including subpoena, seizure and burden of proof under the Money Laundering Prevention Act, 2002. The statute governs investigations by the Directorate of Enforcement.
Before the apex court, the petitioners’ arguments included:
That the safeguards in the Code of Criminal Procedure should also be applied to the PMLA.
No distinction between suspect and witness in the summons phase.
Authority of the emergency department to seize goods.
The lack of a specific standard about when the burden of proof shifts on the accused.
The government has defended the PMLA provisions on the basis of:
Since it is a special statute, it only needs to be constitutionally compliant. And not necessarily have the same guarantees as the CrPC.
When a person is summoned under Article 50 [summoning provision]they are not a suspect.
Property is only seized if it is the proceeds of a crime.
The burden of proof is shifted to the accused only after the prosecution has established a prima facie case.
CrPC Safeguards Missing in PMLA
The right to life and liberty is guaranteed by the Constitution and cannot be taken away without a just, reasonable and fair procedure for the investigation and prosecution of criminal offences, the petitioners say.
These safeguards are present in the Code of Criminal Procedure, 1963, but not in the Money Laundering Prevention Act, 2002. Therefore, the controls should also be built into the PMLA, the petitioners insisted.
For example, they argued that the disclosure of the Enforcement Case Information Report (ECIR) should meet the same standards as the first information report recorded by a police officer.
The national government responded by pointing to the special nature of the money laundering offence.
Attorney General Tushar Mehta said the law was drafted as part of the international effort to fight money laundering and its provisions should be assessed in that context.
The nature of money laundering as a crime is different from the crimes under the Indian Penal Code, 1860, Mehta said.
He explained that money laundering involves intricate stratification of money through fake companies and that the crime takes place inside and outside India’s borders. In money laundering cases there is the possibility that a suspect even removes the traces of a crime to frustrate the investigation.
Parliament, he added, has made a conscious decision not to equate disclosure standards under PMLA with an FIR.
Subpoena provisions deny right against self-incrimination
Once an ECIR is registered, the petitioners argued, the ED calls on the accused and his family members to obtain details of all financial transactions.
It is this subpoena under Section 50 of the PMLA that the petitioners have challenged.
The provision allows the ED to call a suspect and witnesses under the same provision and the person does not know whether they will be called as a suspect or as a witness, senior lawyer Kapil Sibal argued.
According to the petitioners, this procedure violates the constitutionally guaranteed right to remain silent and the accused is also not aware of the charges against him, as the copy of the ECIR has not been provided.
The subpoena provision was defended by Additional Solicitor General SV Raju, who said it passed the constitutionality test.
The right to remain silent as guaranteed by Article 20(3) of the constitution, Raju argued, is only violated if three conditions are met:
One person was charged with any criminal offence.
The person was forced to speak.
The purpose of the coercion should be to get someone to testify against themselves.
The government argued that this was not the case in the Article 50 subpoena provision, as the person is not a suspect at that stage.
Property, seizure and proceeds of crime
The power of attachment exercised by the ED is also under discussion in the case.
The petitioners’ specific challenge concerns the emergency powers of the ED, which they claim seize property that should not be the proceeds of crime.
The second provision of Article 5(1) of the PMLA confers emergency powers to seize a person’s property when an officer who is not below the rank of deputy director has reason to believe that the non-seizure would lead to any proceeding. under the law.
The defense of the emergency garnishment provision was spearheaded by the Additional Solicitor General of India, SV Raju, who cited certain instances where this power was exercised.
The government has argued that certain conditions must be met in order to invoke the second reservation to Article 5(1):
Under the second provision, property can only be seized if it is the proceeds of crime, Raju argued.
Since the enactment of PMLA, the value of property identified as proceeds of crime is around Rs. 98,368 crores. Of which Rs 55,889 crore was upheld by the arbitration authority and a significant portion was still under arbitration, the government submitted to the court.
Attached properties include that of UN-designated terrorist Hafiz Sayeed; Hibul Mujahideen Syed Salahuddin and drug smuggler Iqbal Mirchi.
In some other cases, for example at Vijay Mallya, Nirav Modi and Mehul Choksi’s, 66.91% of the total loss to the banks was returned to them by the Enforcement Directorate, the solicitor general informed.
Shifting the burden of proof differs from criminal justice principles
The petitioners have also asked the court to set specific standards about when the burden of proof shifts on the accused.
Under the PMLA, the burden of proof shifts from the prosecution to the accused once the charges are formulated.
Senior lawyer Abhishek Manu Singhvi argued on this point.
The threshold for shifting the burden of proof was introduced by a change in 2013, but that still hasn’t cured the vice of unconstitutionality, Singhvi argued.
As for the burden of proof, the government argued that the standard of ”evidence beyond a reasonable doubt” has been criticized for placing a heavy burden on prosecution and the term being vague and not easy to define.
Section 24 of the PMLA lowers this burden of proof for the period of the trial once the charges are framed, Raju argued.
Charges are only estimated if there is a prima facie case and the prosecution still has to prove the case beyond a reasonable doubt before sentencing, the government argued.
Finally, the Solicitor General also emphasized that the number of cases registered annually in India was much less than the number of cases registered under similar laws in the US, UK, China, Austria and Russia. Furthermore, the total number of people arrested under the PMLA stands at 331.
The low numbers were evidence of the robust case selection mechanism, according to the government.
The arguments were heard by a bench of three Supreme Court justices chaired by Judge AM Khanwilkar. The bank has reserved the ruling in the case.
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