The prevention of Money Laundering Act was enacted in the year of 2002. After
enactment of this Act various provisions were challenged by questioning the
constitutional validity in various petition before the Hon'ble Supreme court.
This article is a critical analysis whether those provisions of PMLA are
constitutionally valid or not. In this article we have first stated the general
overview of Money Laundering and PMLA, then we have discussed the
constitutionality of various provisions of PMLA and conclusive point of view.
What is money laundering?
The process of concealing the origin of money, often obtained from illicit
activities such as drugs, trafficking, corruption, embezzlement or gambling, by
converting into a legitimate source, is known as money laundering.
Section 3 of Prevention of Money Laundering Act, 2002 Deals with Offence of
money-laundering. According to section 3 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 the proceeds of crime and
projecting it as untainted property shall be guilty of offence of
Prevention of Money Laundering Act, 2002
Prevention of Money Laundering Act or PMLA is an Act enacted by Indian
Parliament in 2002 to prevent money laundering and to provide confiscation of
property derived from or involved in money laundering and formatters connected
Constitutionality of various provisions of Prevention of Money Laundering
A total number of 241 petitions were filed challenging the validity of the
Prevention of Money Laundering Act, 2002. Constitutionality of various
provisions of PMLA were challenged in these petitions.
The Hon'ble Supreme Court clubbed all those petitions and upholds Constitutional
validity of this Act through a single judgment.
- No need to Provide ECIR while arrest:
In one of those petition it was stated that while arresting an accused for
committing money laundering the service of Enforcement Case Information
Report (ECIR) should be mandatory like FIR. The Hon'ble Supreme Court held
that, "ECIR cannot be equated with FIR and ECIR is an internal document of
ED, hence supply of ECIR to accused is not mandatory and only disclosure of
reasons or grounds during arrest is enough.
- Offence of money laundering (sec-3):
According to section 3 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 the proceeds of crime and projecting it
as untainted property shall be guilty of offence of money-laundering.
The interpretation suggested by the petitioners that only upon projecting or
claiming the property in question as untainted property that the offence of
section-3 would be complete, stands rejected.
The Hon'ble Supreme Court stated that, "We are clearly of the view hat the
expression "and" occurring in section-3 has to be construed as "or", to give
full play to the said provision so as to include "every" process or activity
indulged into by anyone."
- Attachment of property involved in money laundering:
Sec 5(1) of PMLA which empowers the Director or Deputy Director to
provisionally attached a property for 180 days if he has 'reason to believe'
- any person is in possession with the 'proceeds of crime';
- such 'proceeds of crime' are likely to be concealed, transferred, or
dealt with any manner which may result in frustrating the proceedings
related to confiscation of such 'proceeds of crime'.
Thus, the suspected proceeds of crime can be seized from the possession of any
person irrespective of the fact whether the person has been indulged in any
money laundering process or whether it was he who has or has not acquired the
proceeds of crime.
In a petition it was stated that sec-5 of this Act is unconstitutional as it is
violating the provisions of constitution.
State of Gujarat v. Mirzapur Moti Kureshi Kassab Jamat
, in this case the Supreme
Court of India upheld the constitutional validity of certain provisions of the
PMLA, such as the provision for the attachment and confiscation of properties
involved in money laundering.
The Hon'ble Supreme Court held that section 5 is constitutionally valid and
"This provision provides a balancing arrangement to secure the
interests of the person as also ensures that proceeds of crime remain available
to be dealt with in the manner provided under the Act. The procedural safeguards
as delineated are effective measures to protect the interests of persons
In another case, the Supreme Court of India also upheld the constitutional
validity of certain provisions of the PMLA.
Nikesh Tarachand Shah v. Union of India
, in this case the Supreme Court of India
upheld the constitutionality of the PMLA, stating that it is not violative of
the fundamental rights guaranteed under the Indian Constitution.
The court held that the PMLA is a reasonable restriction on the right to
property, which is guaranteed under Article 300A of the Constitution, as it
seeks to prevent the use of fraudulent wealth for unlawful activities.
Burden of proof:
When a person is accused of having committed the offence
under section 3, the burden of proving that proceeds of crime are untrained
property shall be on the accused.
In criminal cases it is on prosecution, so the section was challenged.
The Hon'ble Supreme Court held that section 24 of this Act has reasonable nexus
with the purposes and objects sought to be achieved.
Statement by accused to ED (sec-50):
Section 50 empowers the investigating
officer to summon and record the statements of persons concerned and also to
make a note or inventory of such records or property.
The validity of sec-50 of PMLA was questioned in one of those petition, as it
violates Article 20(3) of the Constitution which deals with rule against
Supreme court held that:
"At the stage of issue of summons, the person cannot claim protection under
Article 20(3) of the Constitution. However, if his/her statement is recorded
after a formal arrest by the ED official, the consequences of Article 20(3) or
sec-25 of the Evidence Act may come into play to urge that the same being in the
nature of confession, shall not be proved against him."
Therefore, by analyzing the aforementioned points it can be concluded that the
Prevention of Money Laundering Act, 2002 or PMLA is constitutional under the
Written by: Arghya Mondal,
B.B.A.LL.B(H), 2018-2023 - SOA National
Institute of Law (Bhubaneswar, Odisha)