UNIVERSITY INSTITUTE OF LEGAL STUDIES,

PANJAB UNIVERSITY, CHANDIGARH

ORGANIZED CRIMES AND INTERNAL SECURITY

LAWS PROJECT:
LATEST JUDGEMENTS REGARDING PREVENTION OF MONEY
LAUNDERING ACT , 2002

SUBMITTED T0: DR SHRUTI BEDI

SUBMITTED BY: MUSKAN
ROLL NO.: 81/20

SECTION B, BALLB (HONS.) 7TH SEM

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 ACKNOWLEDGEMENT

FIRST OF ALL, I AM THANKFUL TO GOD WHO BLESSED ME WITH

PATIENCE AND STRENGTH TO COMPLETE THE PROJECT REPORT
ON TOPIC “LATEST JUDGEMENTS REGARDING PMLA ACT, 2002”.

THEN I WOULD LIKE TO THANK MY PROFESSOR DR SHRUTI BEDI

UNDER WHOSE GUIDANCE I AM ABLE TO COMPLETE OUR
PROJECT FOR SEMESTER 7.

I WOULD ALSO LIKE TO THANK UILS DEPARTMENT FOR

PROVIDING ALL THE VALUABLE SOURCES AND FACILITIES
REGARDING OUR STUDIES.

LAST BUT FOREMOST I WOULD LIKE TO THANK MY PARENTS

FOR PROVIDING ME SUPPORT WHENEVER I NEEDED.

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 TABLE OF CONTENTS

S.NO TOPIC PAGE NO.

1. INTRODUCTION 4-5
2. FEATURES OF THE ACT 6-7
3. OBJECTIVES OF THE ACT 8
4. DIRECTORATE OF ENFORCEMENT V. 9-10
DEBABRATA HALDER
5. NIKESH TARACHAND SHAH VS UNION OF 11-13
INDIA
6. VIJAY MADANLAL CHOUDHARY V. UNION 14-17
OF INDIA.

7. CRITICISM OF THE ACT 18-19

8. CONCLUSION 20
9. BIBLIOGRAPHY 21

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 INTRODUCTION

Money laundering is a term used widely ranging from investigative agencies to disciplinary
research. While everyone is quite well-acquainted with the concept of it, the most common legal
definition of money laundering is “It refers to a financial transaction scheme that aims to conceal
the identity, source, and destination of illicitly-obtained money”

Legally speaking however, this definition becomes more elaborative. Article 1 of EC Directive
on Prevention of the use of the Financial System for the Purpose of Money Laundering, 1991
defines the term defines Money Laundering as “The conversion of property knowing that such
property is derived from serious crime, for the purpose of concealing or disguising the illicit
origin of the property or of assisting any person who is involved in committing such an offence(s)
to evade the legal consequences of his action, and the concealment or disguise of the true nature,
source, location, disposition, movement, rights with respect to, or ownership of property,
knowing that such property is derived from serious crime.” It is easier to understand the whole
process of this activity by dividing it into three stages.

Placement- The first stage is when the money derived from illegal activity is handed over
to the launderer or the one who is entrusted with the task of money laundering. This is
also the stage where money is for the first time injected into the financial system.

Layering- Second, this intermediary passes on the money into a series of transactions that
are complex and involve multiple stakeholders. The reason behind carrying out such a
varied scheme of transaction is to hide the identity of the individual who initially gained
the money from criminal activities.

Integration- Thirdly the money is returned back to the mastermind under the disguise of
some legal transaction. It also enters into the entire financial system as if it is acquired by
ordinary means.

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Our country has criminalized money laundering under the Prevention of Money Laundering Act,
2002 (PMLA), as amended in 2005. This act levies a fine up to Rupees five lakhs, this upper
limit of fine which the new bill proposes to remove and increase. The Prevention of Money
Laundering Act, 2002 is an Act of the Parliament of India enacted to prevent money-laundering
and to provide for confiscation of property that is derived from money-laundering.

The Act imposes an obligation on banking companies, financial institutions, and intermediaries
to verify identity of clients, maintain records and furnish information in prescribed form to the
competent authorities formed and appointed in that regard.

The PMLA is undoubtedly the most exhaustive piece of legislation meant to identify acts and
practices pertaining to money laundering and combat the effects thereof. Section 3 of the PMLA
describes the concept of money laundering. Under this, those activities include ‘attempts to
indulge or assist another person’ or become ‘involved in any activity connected with the
proceeds of crime and projecting it as untainted property’. The section of ‘Proceeds of crime’
helps understand the scope of the term money laundering within the PMLA and what activities
constitute it. This term is also defined to describe properties and assets acquired out of a criminal
activity.

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 FEATURES OF THE ACT

The Prevention of Money Laundering Act, 2002, is a crucial legislative tool in India's efforts to
combat money laundering and related financial crimes. It aims to create a transparent and
accountable financial system while deterring and penalizing illicit financial activities.
Here are the key features of the Prevention of Money Laundering Act, 2002:

1. Money Laundering Offense:PMLA defines money laundering as any process or

activity intended to conceal the identity or origin of illegally obtained money or
property, making it appear legitimate.
2. Criminalization of Money Laundering :PMLA criminalizes money laundering and
imposes penalties, including imprisonment and fines, for individuals and entities
involved in money laundering activities.
3. Attachment and Confiscation of Proceeds of Crime:The Act provides for the
attachment and confiscation of the proceeds of crime involved in money
laundering. Authorities can seize assets and properties derived from illegal
activities.
4. Designated Authorities:PMLA designates specific authorities, including the
Director and Deputy Director of the Enforcement Directorate, as empowered
officers to investigate and take action against money laundering offenses.
5. Preventive Measures:PMLA empowers authorities to take preventive measures to
stop money laundering activities. They can issue orders to freeze or seize assets
suspected to be involved in money laundering.
6. Reporting Obligations:The Act imposes reporting obligations on banks, financial
institutions, and intermediaries to maintain records of transactions and report
suspicious transactions to the authorities. Non-compliance may attract penalties.
7. Customer Due Diligence (CDD):PMLA mandates financial institutions to conduct
customer due diligence (CDD) and maintain proper records to verify the identity
of customers and the purpose of transactions.

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8. International Cooperation:PMLA facilitates international cooperation in the
investigation and prosecution of money laundering offenses. It enables the sharing
of information and cooperation with foreign jurisdictions in combating money
laundering.
9. Adjudicating Authorities:The Act establishes adjudicating authorities to hear
appeals against attachment and confiscation of properties under the Act. These
authorities have the power to confirm, modify, or set aside the attachment or
confiscation orders.
10. Penalties and Punishments:PMLA prescribes stringent penalties, including
imprisonment and fines, for various offenses related to money laundering, making
it a powerful tool in the fight against financial crimes.

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OBJECTIVES OF THE PREVENTION OF MONEY
LAUNDERING ACT, 2002

The Prevention of Money Laundering Act, 2002, was introduced to combat the issue of
money laundering. Some of its objectives are as follows:

❖ Prevent money-laundering.
❖ Combat/prevent channelising of money into illegal activities and economic
crimes.
❖ Provide for confiscating property derived from, or involved/used in, money
laundering.
❖ Penalize the offenders of money laundering offenses.
❖ Appointing an adjudicating authority and appellate tribunal for taking charge of
money laundering matters.
❖ Provide for matters connected and incidental to the acts of money laundering.

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 LATEST JUDGEMENTS

1.DIRECTORATE OF ENFORCEMENT V. DEBABRATA HALDER1

FACTS OF THE CASE

The allegation was that a bank guarantee was encashed fraudulently with the active
collusion of bank officials along with the beneficiaries, the respondent-accused persons.
The accused was found to be involved in the commission of offences of money
laundering indulging in criminal conspiracy for laundering of the illicit “proceeds of
crime”. He was arrested under Section 19, PMLA and accordingly produced before the
Special Court, and thereafter remanded from time to time. Final report under Section 45
was filed by the ED against 13 persons including the respondent-accused. Respondent 1
accused was alleged to be the kingpin and main architect conspirator of the whole
offence.

ISSUE RAISED
The petitioner challenged the grant of bail by the Special Court (CBI/PMLA) in offenses
relating to PMLA to the respondent-accused persons.

DECISION OF THE COURT

Delving into the consideration governing grant/denial of the bail, and referring to the
judgment of Ranjit singh Brahma jeetsingh Sharma v. State of Maharashtra2,
interpreting the twin conditions for grant of bail, the Court held that what is required is to
assess the probability based on reasonable material corrected during investigation of the
likelihood of the guilt or acquittal of the accused during the trial. The phrase “reasonable
grounds for believing” and the expression “reasonable grounds'' means something more
than “prima facie grounds under Section 45”, which would mean that court has to grant
bail only if there is a genuine case against the accused in which there is prima facie

1
CRM (SB) 93 of 2022
2
(2005) 5 SCC 294

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likelihood of his involvement. When a person has responded to summons during
investigation of the ED, then bail must be granted as a matter of practice. Accordingly,
the order of bail passed in favour of the respondent-Accused 2-11 by the trial court was
affirmed. However, insofar as the principle accused Debabrata Halder was concerned, it
was observed that the trial court failed to record its satisfaction and findings regarding the
broad probabilities relating to the existence of reasonable grounds for believing that the
accused Debabrata Halder was not guilty of the offence alleged under PMLA, 2002. He
was the mastermind and kingspin of the whole offence which was overlooked by the trial
court and thus without adhering specially to the mandate of Section 45, the principal
respondent Debabrata Halder was enlarged on bail. It was further held that the
investigation agency is under no obligation to seek a formal specific prayer for convening
further investigation, which is the sole prerogative of the investigation agency. The only
duty cast upon the investigation agency is to the extent of informing the court concerned
of its intent to convene and conduct further investigation, which was done in the present
case. Accordingly, the bail granted to Respondent 1 Debabrata Halder was set aside, with
a collateral direction to surrender back to the competent court within 72 hours....

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2.NIKESH TARACHAND SHAH VS UNION OF INDIA3

FACTS OF THE CASE

In the said case, writ petition and appeals were filed challenging the constitutional validity of
twin conditions for granting bail u/s Section 45 of the Prevention of Money Laundering Act,
2002. Section 45(1) imposes 'two conditions' for grant of bail where an offence punishable for a
term of imprisonment of more than 3 years under 'Part A of the Schedule' to the Act is involved.
The conditions are that the:-(i) Public Prosecutor must be given an opportunity to oppose any
application for release on bail and the Court must be satisfied

(i) where the Public Prosecutor opposes the application, that there are reasonable grounds for
believing that the accused is not guilty of such offence, and that he is not likely to commit any
offence while on bail.

ISSUES INVOLVED IN THE CASE

Whether the aforesaid twin conditions are manifestly arbitrary, discriminatory and violative of
fundamental rights enshrined under Article 14 and 21 of the Constitution?

ARGUMENTS ON BEHALF OF THE PETITIONER

According to Senior Advocate and Former Attorney General for India Mr. Mukul Rohtagi,
putting 'Part B offences' together with heinous offences in 'Part A' would amount to treating
unequals equally and would be discriminatory, arbitrary and thus violative of Article 14 and 21
of the Constitution. A person will be punished for an offence contained under the PML Act,

2002, but will be denied bail because of a predicate offence which is contained in Part A of the
schedule rendering Section 45(1) as manifestly arbitrary and unreasonable. The threshold of
three years and above stipulated as a condition in Section 45(1) of the PML Act is discriminatory
and manifestly arbitrary and therefore violative of Article 14 of the Constitution of India. Such

3
AIR 2017 SC 5500

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classification resulted in anomalous situations where a person was being prosecuted for an
offence under the PMLA, but he was being denied bail because of the Impugned Conditions.

Furthermore, a person accused of such Scheduled Offence could on one hand be enlarged on
anticipatory bail in case of charges under the Indian Penal Code 1860 but a person arrested for
such Scheduled Offence pursuant to a charge under the PMLA could only secure bail subject to
the satisfaction of the Impugned Conditions. The twin conditions are unfair, unjust and against
Article 21 of the Constitution on India (i.e. the right to life and personal liberty), in as much as
they require the accused to disclose their defense at the stage of arrest itself.

JUDGMENT OF THE SUPREME COURT

With respect to the challenge under Article 14, the Supreme Court considered the discrimination
caused by (a) the classification of the offenses under Section 45(1) and (b) the application of
Section 45(1) to various situations. The Supreme Court held that a classification based on
sentence of imprisonment of the Scheduled Offense, had no rational relation to the object of the
PMLA, i.e. attaching and bringing back into the economy large amounts byway of proceeds of
crime. The court considered that the money/proceeds could also be derived from other serious
offenses under the IPC (i.e. offenses with a maximum punishment of 10 years), which were not
explicitly mentioned in Part A, however, a person accused of such an offense could get bail
without the application of the Impugned Conditions.

With respect to the application of the Impugned Conditions, the Supreme Court, inter alia, held
that:

a. Section 45(1) of the PML Act led to a situation where the same offenders in different
cases might end up facing different results insofar as the grant of bail was concerned,
depending on whether Section 45(1) did or did not apply. This was held to be
particularly problematic as the grant or rejection of the bail had no relation to the
offence of money laundering under the PML Act, however the mere fact that the
offence of money laundering was being tried with the offences under Part A, led to
the denial of bail.

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 b. The Impugned Conditions which required the accused to establish that the accused
was not guilty of “such offence” and that the accused was not likely to commit “any
offence” while on bail were manifestly arbitrary and discriminatory. An accused was
being denied bail for the Scheduled Offence basis the Impugned Conditions,
although such a person could prove that there were reasonable grounds for believing
that he or she was not guilty of the offence of money laundering.
c. The PMLA had not prohibited the grant of an anticipatory bail, thereby resulting in
an anomalous situation where for the same offence of money laundering and the
Scheduled Offence, a person could be granted anticipatory bail, however he shall be
granted regular bail subject to the satisfaction of the Impugned Conditions.

After an elaborate discussion on the challenges to the Impugned Conditions on the basis of
Article 14, the Supreme Court also cursorily dealt with the challenge to the conditions under
Article 21, i.e. if the Impugned Conditions, which inversed the presumption of innocence,
violated the fundamental right of personal liberty. The Supreme Court held that the Impugned
Conditions were “drastic provisions…..which makes drastic inroads into the fundamental right
of personal liberty” and that such provisions could only be upheld on the ground that there was a
“compelling state interest in tackling crimes of an extremely heinous nature”. It may be
worthwhile to note that the Supreme Court was not compelled to address if the Impugned
Conditions actually met the muster of ‘compelling state interest’, as it could ex facie strike down
the Impugned Conditions on the aforementioned grounds that it violated the constitutional right
to equality of the accused.

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3. VIJAY MADANLAL CHOUDHARY VS UNION OF INDIA (2022)4

Challenge was laid to various provisions of the Prevention of Money Laundering Act, 2002
(hereinafter “PMLA”) and the various Rules framed thereunder, specifically the provisions
relating to the following three heads:
(a) the registration of ECIR and procedures relating to disclosure of the same to the accused
person;
(b) powers of arrest and grant of bail in relation thereto; and
(c) attachment of property as proceeds arising out of crime/offence committed under the
scheduled offences.

PMLA and objectives

The Court whilst referring to the parliamentary intent of PMLA observed that money laundering
has become a means of livelihood for drug dealers, peddlers, terrorists, human traffickers, and
host of white-collar criminals. Circulation of tainted money breeds discontent in the society and
the country both, leading to more crime and civil unrest, consequentially obliging the Central
Government to protect the people from such offences. The proactive steps taken towards
checking such serious and deleterious offences for society must always be facilitated and the
interpretation of various provisions must also be in accord thereof.
The Court while adjudicating upon the constitutionality of the PMLA extensively referred to the
international background, conferences and resolutions that compelled the enactment of such a
strongly worded enactment viz. UN Convention Against Illicit Traffic in Narcotic Drugs and
Psychotropic Substances,1988 ( “Vienna Convention” or “1988 Convention”), Basel Statement
of Principles , enunciated in 1989; the financial action task force (hereinafter “FATF”)
established therein in July 1989, later adopted by the UN General Assembly in February 1990,
urging the State parties and signatories to enact comprehensive legislation for dealing with the
serious threat of money laundering. The court also examined and scanned the Preamble,
legislative intent, parliamentary objective and other provisions behind enactment of the PMLA,
to arrive at a finding that the purpose of PMLA was as serious as the major design to remedy it
viz. putting a lid on activities emanating, relating, perpetuating or leading to money laundering.

4
2022 SCC ON LINE SC 929

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Section 5 — Attachment, adjudication and confiscation of property involved in money
laundering
Whilst repelling the challenge to Section 5 the Court held as follows:
(a) The powers are vested in a senior responsible officer of the rank of director (not below the
rank of Deputy Director in any eventuality). Such authorized senior officer is expected to act
only when there are reasons to believe “on the basis of material in his possession, recorded in
writing“ that when proceeds of crime (money laundering) are likely to be concealed, transferred
or dealt with in any manner resulting in frustrating, wiping out of the proceedings concerning
confiscation, then he may order for immediate attachment of the property involved.
(b) The order of attachment is preceded by order of provisional attachment, only after approval
by the Magistrate or court competent to take cognizance of the scheduled offence (under
Schedule II, PMLA). This acts as another check on arbitrary attachment or confiscation of the
subject property.
(c) The efficacy and urgency of prevention of money laundering demands an urgent, timely
intervention by the authorized investigating agency, for which reason therefore without
registering FIR the power has rightly been conferred for provisionally attaching the apprehended
proceeds of crime without formal registration of FIR.
(d) The provisional attachment is operative for a time-bound period of 180 days, within which it
has to be approved by 3-member adjudicating authority of senior responsible judicial officers,
failing which it ceases to exist. The orders of adjudicating authorities are subject to appeal before
Appellate Tribunal constituted under Section 25 of the 2002 Act, thus not making the
adjudicating authority the final arbiter on the said issue. The Appellate Tribunal can always
decide on the validity of the sis is further appellable before the High Court under Section 42 of
the 2002 Act on both questions of fact and law.
Thus, Section 5 was held to be not arbitrary, unguided or violative of Article 14 of the
Constitution of India.

Validity of Sections 17 and 18 — Search and seizure

The Court then examined the validity of Sections 17 and 18, whereupon it was argued that
without registration of any FIR by the authorized officer, the powers of search and seizure could
be resorted to. Holding the 2002 Act as a self-contained code and not influenced or affected by

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any of the provisions of Criminal Procedure Code, 1973, especially relating to arrest, search and
seizure, attachment, investigation, prosecution, etc., the Court held that CrPC cannot be made the
basis for adjudicating upon the constitutionality of Section 17 of the PMLA. Even otherwise the
pari materia provisions relating to such potent powers of search and seizure in other enactments
viz. Income Tax Act, 1961, Customs Act, 1962 (Sections 105 and 136), Foreign Exchange
Regulation Act, 1973 (FERA Act) (Section 37), Court held that such powers and provisions are
not new to PMLA, but have been existing for many decades in other enactments, affirmed and
upheld by the Constitution Benches of the Supreme Court.

Validity of Section 19 — Power to arrest

Considering challenge to Section 19, the Court declined to hold the same to be arbitrary or
violative of Articles 14, 19 and 21 of the Constitution of India on the ground that powers of
arrest are invested with high ranking officials with strong inbuilt safeguards (reasons to be
recorded in writing and grounds of arrest to be informed to the affected person at the earliest).
Referring to other statutory safeguards guarding against arbitrary, immediate or impulsive arrest,
Court held that justifiably arrest can be effected under Section 19 without any formal FIR; such a
practice and power has been provided in multiple other enactments, which have been governing
the field for long and even held to be constitutional by the Supreme Court in the past.
Section 19 cannot be held unreasonable or arbitrary merely because the authority in power may
abuse its authority.

Validity of the Schedule Part A to the PMLA (Providing for various offences under which the
PMLA offences are said to have been commissioned)
On the validity of Schedule to the PMLA, especially Part A, (Providing for various offences
under which the PMLA offences are said to have been commissioned), the Court held that it is a
matter of pure legislative policy, which the Courts are not supposed to be interfering into. It is
the Parliament’s prerogative to decipher which offences to be covered under the fold of PMLA,
which prerogative cannot be declared to be unconstitutional till and until the legislative
competence to do so exists under Schedule VII to the Constitution of India.

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Accordingly, the challenge to various provisions and Rules made under the PMLA was repealed
by the Supreme Court.

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 CRITICISM OF THE ACT

The Prevention of Money Laundering Act (PMLA) in India, like any legislation, has faced
criticism on several fronts. Critics have raised various concerns regarding its provisions,
implementation, and impact on individuals and businesses. Here are some common criticisms of
the PMLA:

1. Overreach and Vagueness in Definitions:Critics argue that the definitions of terms like
"proceeds of crime," "money laundering," and "offenses" are vague and overly broad.
This vagueness can potentially lead to misuse and misinterpretation of the law.

2. Burden of Proof and Reversal of Presumption:PMLA follows a principle of "reversal of

burden of proof," where the accused has to prove their innocence rather than the
prosecution proving guilt. Critics argue that this infringes on the fundamental principle of
"innocent until proven guilty."

3. Excessive Penalties:The Act imposes severe penalties, including hefty fines and
imprisonment, which are criticized for being disproportionate and excessive for certain
offenses. Critics believe that this could deter legitimate business activities.

4. Admissibility of Statements to Police:The provision allowing confessions made to police

officers to be admissible in court is criticized for potential abuse and coercion, impacting
the rights of the accused.

5. Impact on Fundamental Rights:Some critics argue that PMLA may infringe upon
fundamental rights, such as the right to property and the right to privacy, due to its
extensive powers of seizure and investigation.

6. Misuse and Harassment:There are concerns about the potential misuse of PMLA for
political or personal vendettas, resulting in harassment of individuals or businesses
without proper evidence.

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7. Chilling Effect on Financial Transactions:The stringent reporting requirements and the
fear of inadvertently violating the law can create a chilling effect on normal financial
transactions, especially for businesses and financial institutions.

8. Lack of Clarity on Exemptions and Safe Harbors:Critics argue that the Act lacks clarity
on exemptions or safe harbors for certain transactions or situations, creating uncertainty
for businesses.

9. Slow Legal Processes and Backlog:The legal process under PMLA is often criticized for
being slow and cumbersome, leading to a significant backlog of cases. This delay can
result in prolonged uncertainty for the accused.

10. Challenges in International Cooperation:Coordinating with international jurisdictions for

investigation and enforcement can be challenging due to differing legal systems,
processes, and procedures.

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 CONCLUSION

In conclusion, the Prevention of Money Laundering Act (PMLA) 2002 stands as a critical pillar
in India's efforts to combat money laundering and related financial offenses. By defining money
laundering, prescribing penalties, and establishing a robust legal framework for enforcement, the
PMLA plays a pivotal role in deterring individuals and entities from engaging in illegal financial
practices. The Act's emphasis on identification, confiscation, and forfeiture of the proceeds of
crime demonstrates the government's commitment to curtailing the impact of illegal gains on
society. The establishment of the Enforcement Directorate (ED) as a specialized agency signifies
the proactive approach taken to enforce these provisions and investigate financial crimes
effectively.

Furthermore, PMLA underscores the importance of international cooperation by enabling

collaboration with foreign jurisdictions, aligning India with global efforts to combat money
laundering. The Act's emphasis on customer due diligence and reporting obligations for financial
institutions promotes transparency and accountability, fostering a more secure financial
environment. It is essential to note the ongoing amendments and updates to the Act to address
evolving challenges and ensure its continued effectiveness in tackling money laundering.

Overall, the Prevention of Money Laundering Act, 2002, serves as a testament to India's
dedication to financial integrity, lawful practices, and international collaboration in the fight
against money laundering, ultimately safeguarding the nation's economic interests and upholding
the rule of law.

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 BIBLIOGRAPHY

• WWW.CASEMINE.COM
• WWW.IPLEADERS.COM
• WWW.SUPREMECOURTCASES.COM
• WWW.LIVELAW.COM
• WWW.LAWYERSCLUBINDIA.COM
• AKLEGAL.IN

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