On 27 July 2022, a three-judge Bench of the Supreme Court of India delivered an important judgement in Vijay Madanlal Chowdhary & Ors. v Union of India & Ors. (Vijay Madanlal), in relation to key provisions of the Prevention of Money Laundering Act, 2002 (PMLA). The PMLA is India’s principal anti-money-laundering statute, enacted to prevent money laundering and also provide for the confiscation of property derived or obtained as a result of criminal activity.
The PMLA came into force in 2005. Since then, it has been amended several times to bring it in line with international conventions relating to money laundering, particularly in response to recommendations made by the Financial Action Task Force. Significant amendments were recently made to the PMLA by the Finance Act, 2018 (2018 Amendment) and the Finance (No. 2) Act, 2019 (2019 Amendment) (together, the Amendments).
In Vijay Madanlal, the Petitioners (across over 200 petitions) had essentially challenged the constitutional validity of various provisions of the PMLA relating to the scope of powers vested in the Enforcement Directorate (ED), the investigating agency which is tasked with enforcing the provisions of the PMLA, and the Special Courts/Adjudicating Authorities which deal with the prosecution of offenders and the taking of possession/confiscation of properties.
The Supreme Court upheld the constitutional validity of the provisions under challenge. In doing so, it also expounded on several controversial issues relating to the construct of the offence of ‘money-laundering’, the extent of investigative powers exercisable by the ED, the circumstances under which properties can be attached, and the conditions for grant of bail— all of which may be of particular relevance to companies or individuals who are or may be subject to investigation/prosecution under the PMLA
What constitutes an offence of ‘money-laundering’?
Section 3 of the PMLA, which defines the offence of ‘money-laundering’, stipulates that “Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.” Subsequently, by way of the 2019 Amendment, an explanation (Explanation I) was added to Section 3 of the PMLA stipulating that Section 3 refers to the ‘process or activity’ connected with proceeds of crime, namely: (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property or (f) claiming as untainted property.
The scope and ambit of Section 3 of the PMLA came into question following the 2019 Amendment on account of what appeared to be a discrepancy between Explanation I (which stipulated a person could be proceeded against for mere acts of concealment, possession, acquisition or use of proceeds of crime), and the main text of Section 3, which appeared to stipulate that an additional element of ‘projecting’, or ‘claiming’ proceeds of crime as untainted property was necessary to constitute an offence of money laundering.Download PDF to read more
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