Prevention of Money Laundering Act 2002

A day after a trial court granted bail to the Delhi Chief Minister, who is in jail on charges under the Prevention of Money Laundering Act (PMLA), the Delhi High Court stayed the order.

• The Enforcement Directorate challenged the trial court’s order, arguing that the court failed to apply the ‘twin test’ for granting bail under PMLA.

About Prevention of Money Laundering Act 2002

• The Prevention of Money Laundering Act 2002 was enacted in January, 2003. 
• The Act seeks to combat money laundering in India and has three main objectives – 
  • To prevent and control money laundering
  • To confiscate and seize the property obtained from the laundered money; and
  • To deal with any other issue connected with money laundering in India.

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Provisions of the Prevention of Money Laundering Act 2002

• Section 3: It defines the offence of money laundering, contingent upon the existence of a predicate offence.
• Investigation Authority: The Central Bureau of Investigation (CBI) or State Police investigates and prosecutes the predicate offence.
• Section 4 specifies the penalties for offences under the PMLA.
• Section 50: It Provides Enforcement Directorate (ED) authorities with civil court powers to summon suspects for money laundering and record their statements.
• Prescribed Obligations: The PMLA mandates banking companies, financial institutions, and intermediaries to verify and maintain records of client identities and transactions. 
  • They must also report such transactions to the Financial Intelligence Unit (FIU-IND) in a prescribed format.
• Section 45: Section 45 of the PMLA deals with bail, first states that no court can grant bail for offences under this law, and then proceeds to mention a few exceptions. 
• Twin Conditions of Bail: The provision makes it mandatory to hear the public prosecutor in all bail applications, and when the prosecutor opposes bail, the court is required to apply a twin test.
  • These two conditions are:  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”.
• Similar Provisions in Other Laws: There are similar provisions in several other laws that deal with serious offences, for example, Section 36AC of The Drugs and Cosmetics Act, 1940, Section 37 of The Narcotic Drugs and Psychotropic Substances Act, 1985, and Section 43D(5) of the Unlawful Activities Prevention Act, 1967.
• Adjudicating Authority:  The PMLA provides for the establishment of an Adjudicating Authority with jurisdiction, power, and authority conferred by the Act.
• Appellate Tribunal: Additionally, an Appellate Tribunal is envisaged to hear appeals against orders of the Adjudicating Authority and authorities such as the Director of FIU-IND.
• Special Courts: Special Courts are designated under the PMLA to try offenses punishable under the Act and offenses that can be charged under the Code of Criminal Procedure, 1973, in the same trial.
• International Agreements: The PMLA empowers the Central Government to enter into agreements with foreign governments for enforcing the provisions of the Act, exchanging information, or investigating cases related to offenses under the PMLA.

Legality of Bail Provision of the PMLA Act

• Constitutional Challenge: In the case of Nikesh Tarachand Shah vs Union of India (2018), the bail provision of the PMLA Act was deemed unconstitutional for violating Article 14 and Article 21.
• Parliamentary Restoration: Subsequently, Parliament restored the bail provision through amendments.
• Judicial Upholding: In Vijay Madanlal Choudhary vs Union of India (2022), the Supreme Court upheld the bail provision, ruling it reasonable and aligned with the objectives of the PMLA Act.
• Legislative Discretion; The Court affirmed that the inclusion of specific offenses in the schedule falls within the purview of legislative policy.

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