Prevention of Money-Laundering Act, 2002 — Exhaustive Notes

EXHAUSTIVE NOTES
ON

THE PREVENTION OF MONEY-LAUNDERING ACT,

2002

WEEK 6 & WEEK 7 — COMPREHENSIVE ACADEMIC NOTES

Including Analysis of Vijay Madanlal Choudhary v. Union of India (2022)

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INTRODUCTION TO THE PREVENTION OF MONEY-

LAUNDERING ACT, 2002
The Prevention of Money-Laundering Act, 2002 (PMLA) is the principal legislation in India for
preventing and combating money laundering, providing for attachment and confiscation of proceeds
of crime, and setting up adjudicating and appellate authorities. It received Presidential assent on 17
January 2003 and came into force on 1 July 2005.

Money laundering, as defined under Section 3, involves any person who directly or indirectly
attempts to indulge, knowingly assists, knowingly is a party to, or is actually involved in any process
or activity connected with the proceeds of crime — including concealment, possession, acquisition,
use, projecting or claiming as untainted property — commits the offence of money laundering.

The PMLA was enacted to fulfil India's obligations under international conventions, including the
Vienna Convention (1988) and the Palermo Convention (2000), and to align with FATF (Financial
Action Task Force) recommendations. Over the years, it has been substantially amended in 2009,
2012, 2013, 2015, 2018, and 2019 to widen its scope, strengthen enforcement, and remove
procedural bottlenecks.

Key Principle: The PMLA is not merely a penal statute; it is a socio-economic legislation aimed at
dismantling the financial infrastructure of organised crime. Its provisions must be read in light of this
broader purpose.

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WEEK 6
WEEK 6 — ADJUDICATING AUTHORITIES, POWERS, SUMMONS,
SEARCHES, SEIZURES & ARREST

PART I: ADJUDICATING AUTHORITIES UNDER THE PMLA

1.1 Statutory Basis
The provisions relating to Adjudicating Authorities are contained in Chapter IV of the PMLA
(Sections 6 to 11). The Adjudicating Authority is the quasi-judicial body empowered to determine
whether any property attached under the Act is proceeds of crime, and to order its confiscation.

1.2 Constitution and Composition (Section 6)

Section 6 provides for the constitution of one or more Adjudicating Authorities by the Central
Government. The key features are:

• An Adjudicating Authority consists of a Chairperson and such other members as the Central
Government may appoint.
• The Chairperson must be or have been a Judge of a High Court.
• Members may be persons with expertise in law, finance, economics, banking, or public
administration.
• The Authority exercises powers of a civil court for certain purposes under Section 11.
• Appointment is by the Central Government, and the qualifications, terms of service, salaries,
and allowances of the Chairperson and members are prescribed by rules.
• Under Section 6(4), the Adjudicating Authority shall not be bound by the procedure laid
down by the Code of Civil Procedure, 1908, but shall be guided by principles of natural
justice.
• Under Section 6(5), the Authority has power to regulate its own procedure.
Constitutional validity of the composition of the Adjudicating Authority was upheld by the Supreme
Court in Vijay Madanlal Choudhary v. UOI (2022), which held that the quasi-judicial character and
expertise requirement provide adequate safeguards.

1.3 Jurisdiction and Powers of the Adjudicating Authority

1.3.1 Core Adjudicatory Function (Section 8)
The Adjudicating Authority's primary function is to adjudicate on complaints filed by the
Enforcement Directorate (ED) regarding attachment of property. The procedure is:

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• The Director (ED) or any officer not below the rank of Deputy Director files a
complaint before the Adjudicating Authority within 60 days of the provisional
attachment order (Section 5(5)). Step 1:
• The Authority issues a notice to the concerned person, providing an opportunity to
be heard (Section 8(1)). Step 2:
• After considering all materials and hearing the parties, the Authority passes an order
under Section 8(3): (a) confirming the attachment or (b) releasing the property. Step 3:
• Where attachment is confirmed, the Authority may, under Section 8(5), direct the
concerned person to hand over the property to the Administrator. Step 4:
• The period of attachment continues until the Special Court takes cognizance of the
case. Step 5:

1.3.2 Power of Confiscation (Section 8(5) to 8(8))

Upon conviction by the Special Court, the Authority may order confiscation of the property:

• Section 8(5): After a Special Court has taken cognizance under Section 44, the Adjudicating
Authority may, on application by the Director, order confiscation of property.
• Section 8(6): If the trial court acquits the accused, the attached property shall be released
forthwith.
• Section 8(7): Confiscated property vests in the Central Government free from all
encumbrances.
• Section 8(8): Bona fide third-party interests may be protected.
Amendment 2019: The attachment can now continue even where no person has been charged with
the predicate offence, provided there is a registered case. This significantly expanded the ED's
power.

1.3.3 Power to Attach Property (Section 5)

Although the power of provisional attachment vests in officers of the Enforcement Directorate, it is
subject to confirmation by the Adjudicating Authority. Key features:

• Section 5(1): Where the Director or Deputy Director has reason to believe (recorded in
writing) that a person is in possession of proceeds of crime, they may provisionally attach
such property.
• The attachment can be for a period not exceeding 180 days.
• Section 5(5): A complaint must be filed before the Adjudicating Authority within 60 days of
the attachment.
• The proviso to Section 5(1) requires that there must be a reason to believe that the property
may be dealt with in a manner resulting in frustration of proceedings.

1.3.4 Powers of a Civil Court (Section 11)

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Section 11 confers upon the Adjudicating Authority, for purposes of taking evidence and examining
witnesses, all the powers vested in a civil court under the Code of Civil Procedure, 1908 in respect
of:

• Summoning and enforcing attendance of any person and examining him on oath.
• Requiring discovery and production of documents.
• Receiving evidence on affidavits.
• Issuing commissions for examination of witnesses or documents.
• Requisitioning any public record from any court or office.
• Such other matters as may be prescribed.
Proceedings before the Adjudicating Authority are deemed to be judicial proceedings within the
meaning of Sections 193 and 228 of the Indian Penal Code (IPC).

1.4 Appellate Tribunal (Sections 25 to 42)

An Appellate Tribunal called the Appellate Tribunal for Forfeited Property (ATFP) hears appeals
against orders of the Adjudicating Authority:

• Section 25: Composition — Chairperson (who must be or have been a Judge of the
Supreme Court or Chief Justice of a High Court) and two members.
• Section 26: Any person aggrieved by an order of the Adjudicating Authority may appeal to
the Appellate Tribunal within 45 days (extendable for sufficient cause).
• Section 27: The Appellate Tribunal may pass any order confirming, modifying, or setting
aside the order appealed against.
• Section 42: Further appeal lies to the High Court on questions of law.

PART II: POWER REGARDING SUMMONS, PRODUCTION OF

DOCUMENTS AND EVIDENCE
2.1 Statutory Framework — Section 50
Section 50 of the PMLA is one of the most significant and contested provisions of the Act. It deals
with the power of the authorities — specifically the Director, Additional Director, Joint Director,
Deputy Director, or Assistant Director of the Enforcement Directorate — to summon any person
whose attendance is necessary for the purpose of investigation.

2.2 Key Features of Section 50

2.2.1 Who May be Summoned?

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Under Section 50(2), the authority may summon any person whose attendance is considered
necessary:

• Whether to give evidence; or

• To produce books of account, registers, other documents or records.
The power is broad and is not restricted to persons who are accused. It extends to witnesses,
record-keepers, bankers, chartered accountants, company directors, employees, and any other
person in possession of relevant information.

2.2.2 Obligation on the Summoned Person

• Section 50(3): Every person summoned shall be bound to attend either in person or by an
authorised agent, and shall be bound to state the truth upon any subject respecting which
he is examined or makes statements.
• The summoned person must produce all books, accounts, documents, and records
required.
• Non-compliance with summons attracts liability.

2.2.3 Provisions Applicable — Section 50(1)

The provisions of the Code of Criminal Procedure, 1973 relating to summons, as applicable to civil
courts, apply to the ED authority for the purpose of summoning persons.

2.3 Evidentiary Value of Statements Under Section 50

This is the most controversial aspect of Section 50. Statements recorded under Section 50 are
treated very differently from statements recorded under Section 161 CrPC:

• Statements recorded before an ED officer under Section 50 are ADMISSIBLE as evidence

in trial proceedings under the PMLA.
• This is unlike statements under Section 161 CrPC, which are not admissible (only usable for
contradiction).
• The rationale is that PMLA authorities are not police officers for the purpose of Section 25 of
the Indian Evidence Act, 1872.

2.4 ED Officers Not 'Police Officers' — Judicial Interpretation

A critical issue: Whether ED officers are 'police officers' within the meaning of Section 25 of the
Evidence Act, which renders confessions to police officers inadmissible.

• Held in Directorate of Enforcement v. Deepak Mahajan (1994): Officers under FERA

(precursor to FEMA) are not police officers.

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• The Supreme Court in Vijay Madanlal Choudhary v. UOI (2022) specifically addressed this
for PMLA officers and held that ED officers are NOT police officers within the meaning of
Section 25 of the Evidence Act.
• Consequently, statements recorded under Section 50 are admissible and can be used as
evidence against the accused.
• This position has been controversial and criticised as violative of Article 20(3) of the
Constitution (right against self-incrimination).
Critical Analysis: The issue of admissibility of statements under Section 50 vis-a-vis the protection
against self-incrimination under Article 20(3) remains the most contested constitutional issue under
the PMLA. The Supreme Court in Vijay Madanlal upheld the provision but the debate continues in
legal circles.

2.5 Production of Documents and Records

Section 50 read with Section 11 grants extensive powers to compel production of documents:

• Any person may be required to produce bank statements, financial records, company
accounts, deeds of property, correspondence, electronic records, and any other documents.
• Failure to produce documents is an offence.
• The authority can seize documents during a search under Section 17, but Section 50
enables them to compel production even without a search.

2.6 Section 63 — Penalty for Providing False Information

Section 63 imposes penalties for giving false information or refusing to comply with summons or
notices:

• Imprisonment up to 3 years, or fine, or both.

• If the false information relates to a matter connected with proceeds of crime exceeding Rs. 1
lakh, imprisonment can extend to 7 years.

PART III: SEARCHES AND SEIZURES UNDER THE PMLA

3.1 Statutory Provisions
Searches and Seizures under the PMLA are governed by Sections 16, 17, 18, and 19. The Act
provides for three types of searches: survey (Section 16), search of premises (Section 17), and
search of persons (Section 18).

3.2 Survey — Section 16

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3.2.1 Nature of Survey

Section 16 empowers officers of the Enforcement Directorate (not below the rank of Deputy
Director) to conduct a 'survey' as distinguished from a 'search'. Survey does not involve entry into
residential premises and does not require a warrant.

• The officer may enter any place within the limits of the area assigned to him.
• He may inspect any books of account, register, or other document found therein.
• He may take copies or extracts of such documents.
• He may make an inventory of any property found therein.
• He may record the statement of any person present who is found to be in possession of
proceeds of crime or related documents.

3.2.2 Limitations on Survey

• Cannot enter a residential premise.
• Cannot seize documents (only copy them) during survey. Seizure requires a search under
Section 17.
• Cannot arrest a person during a survey.

3.3 Search of Premises — Section 17

3.3.1 Power to Search
Section 17 provides the most powerful investigatory tool under the PMLA. Where the Director or
any officer not below the rank of Deputy Director has reason to believe (reasons recorded in writing)
that:

• Any person has committed an offence under the Act; or

• Any proceeds of crime or records relating thereto are kept in any building, place, vessel,
vehicle or aircraft;
…then such officer may authorise in writing any officer subordinate to him to search the building,
place, vessel, vehicle, or aircraft and seize any records or property found therein which may be
useful for or relevant to the proceedings.

3.3.2 Procedure for Search under Section 17

The procedure must strictly comply with the requirements of Section 100 of the CrPC (as
applicable):

• The authorisation under Section 17(1) must be in writing.

• Reasons for the belief must be recorded in writing before the authorisation (essential
safeguard).

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• Two independent witnesses must be present during the search.

• The occupant of the premises (or his representative) must be permitted to be present.
• A list (panchnama) of all seized items must be prepared.
• Copies of all documents seized must be furnished to the person from whose custody they
are seized.
• Under Section 17(2): The authorised officer may examine on oath any person present at the
time of search. Such statement is admissible as evidence.

3.3.3 Seizure of Property and Records

• The officer may seize any records or property found at the premises.
• Seized records must be produced before the Adjudicating Authority within 30 days.
• Seized movable property is placed under the custody of the officer making the seizure or
any person nominated by him.
• Section 17(4): The officer shall, within 48 hours of seizure, forward a copy of the reasons for
belief to the Director.
Important: The requirement of recording 'reasons to believe' is a crucial safeguard. In Justice K.S.
Puttaswamy v. UOI (2017), the Supreme Court emphasised that searches and seizures must be
proportionate and cannot be arbitrary. The PMLA's requirement of written reasons satisfies this
constitutional mandate to an extent.

3.4 Search of Persons — Section 18

Section 18 empowers an authorised officer to search any person if there is reason to believe that
such person has secreted about his person any record or proceeds of crime or any article which
may be used as evidence in proceedings under the Act.

• Before conducting the search, the officer must record the reasons in writing.
• The officer must inform the person of his right to be taken to a gazetted officer or magistrate.
• If the person chooses, he shall be taken before the nearest gazetted officer or magistrate.
• The gazetted officer or magistrate may either conduct the search himself or direct the officer
to carry out the search in his presence.
• Where a woman is to be searched, the search shall be made only by another woman with
strict regard to decency.
• The officer may seize any record or article found in the search.
• The seized person and the seized articles must be immediately produced before the nearest
magistrate.

3.5 Sections 102-105 CrPC — General Powers of Search and Seizure

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In addition to the specific provisions under PMLA, the general search and seizure powers under the
CrPC (Sections 100–105) apply to the extent they are consistent with the PMLA. The PMLA
incorporates these by reference in certain provisions.

3.6 Consequences of Illegal Search

If a search is conducted without following the prescribed procedure, the consequences are:

• Evidence obtained may be challenged as inadmissible.

• The officer may face personal liability.
• However, under the doctrine of 'fruit of the poisonous tree' (which is not strictly applied in
India), evidence obtained through illegal searches is not automatically excluded. Indian
courts apply a more flexible test of 'prejudice'.

PART IV: POWER TO ARREST UNDER THE PMLA

4.1 Statutory Provision — Section 19
Section 19 of the PMLA deals with the power to arrest. This provision has been extensively litigated
and was a central issue in Vijay Madanlal Choudhary v. UOI (2022).

4.2 Who Can Arrest?

Under Section 19(1), the Director, Additional Director, Joint Director, Deputy Director, or Assistant
Director of Enforcement may arrest a person if they have 'reason to believe' (reasons recorded in
writing) that such person has been guilty of an offence punishable under Section 4 of the PMLA.

4.3 Procedure Upon Arrest (Sections 19(1) to 19(3))

4.3.1 Before Arrest
• The officer must have reasons to believe, recorded in writing, of the guilt of the person.
• The belief must be based on material on record, not mere suspicion.
• The officer must authorise the arrest in writing.

4.3.2 At the Time of Arrest

• Section 19(1) Proviso: The officer shall, as soon as may be, inform the arrested person of
the grounds for his arrest.
• This is a constitutional requirement under Article 22(1) which mandates that no person shall
be detained in custody without being informed as soon as may be of the grounds for his
arrest.

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4.3.3 After Arrest

• Section 19(2): Every person arrested under Section 19(1) shall, unless for reasons to be
recorded, be forwarded to the officer-in-charge of the nearest police station within 24 hours
of arrest.
• Section 19(3): The officer-in-charge of the police station shall, on receipt of such person,
produce him before the Special Court (or the Magistrate having jurisdiction) within 24 hours,
excluding the time necessary for travel.
• The arrested person must be produced before a Magistrate within 24 hours, as required by
Article 22(2) of the Constitution and Section 57 CrPC.

4.4 Right to Bail — The Twin Conditions (Section 45)

The most distinctive and controversial feature of arrest under PMLA is the condition for bail. Section
45 imposes 'twin conditions' for granting bail:

• The Public Prosecutor must be given an opportunity to oppose the bail application.
Condition 1:
• Where the Public Prosecutor opposes bail, the court must be satisfied 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. Condition 2:
These 'twin conditions' reverse the ordinary presumption of innocence to some extent and make
bail extremely difficult to obtain in PMLA cases.

Section 45 was struck down by the Supreme Court in Nikesh Tarachand Shah v. UOI (2018) as
violative of Articles 14 and 21 of the Constitution. However, Parliament promptly amended Section
45 in 2018 to restore the twin conditions in a modified form. The restored provision was upheld in
Vijay Madanlal Choudhary v. UOI (2022), with the Court reading it as applying to ALL PMLA
offences and not just select scheduled offences.

4.5 Remand — Section 167 CrPC as Applicable under PMLA

Once arrested, the accused may be remanded to custody. The ED can seek Enforcement Custody
Remand (ECR) — an ED remand — for purposes of investigation:

• The total period of remand (police/ED custody + judicial custody) cannot exceed 60 days for
offences with punishment up to 10 years, and 90 days for offences with punishment
exceeding 10 years.
• On expiry of remand period, if a chargesheet is not filed, the accused is entitled to default
bail (bail under the proviso to Section 167(2) CrPC).
• In PMLA, the 'complaint' (chargesheet) must be filed within 60/90 days, failing which default
bail becomes available.

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4.6 ECIR (Enforcement Case Information Report)

An important procedural aspect is that the ED does NOT register an FIR. Instead, it registers an
ECIR (Enforcement Case Information Report) which is internal to the ED:

• An ECIR is not required to be shared with the accused as a matter of right (held in Vijay
Madanlal Choudhary v. UOI).
• The grounds of arrest must be communicated to the arrested person, but not necessarily the
full ECIR.
• This has been criticised as denying the accused the ability to effectively challenge the
arrest.

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WEEK 7 — PRESUMPTIONS, BURDEN OF PROOF &

COGNIZABILITY OF OFFENCES

PART V: PRESUMPTIONS AND BURDEN OF PROOF UNDER

THE PMLA
5.1 General Principle of Burden of Proof in Criminal Law
In ordinary criminal law, the burden of proof rests entirely on the prosecution (Article 20(3); Section
101 Evidence Act). The accused is presumed innocent until proven guilty beyond reasonable doubt.
The PMLA significantly departs from this principle through a system of statutory presumptions.

5.2 Key Provisions on Presumptions

5.2.1 Section 24 — Presumption in Certain Cases
Section 24 is the central provision on burden of proof under the PMLA:

"When a person is accused of having committed the offence of money-laundering under

Section 3, the Authority or Court shall, unless the contrary is proved, presume that such
proceeds of crime are involved in money-laundering."

This provision effectively reverses the burden of proof with respect to the connection of the property
with proceeds of crime. Once the prosecution establishes that the property constitutes 'proceeds of
crime', the accused must prove the contrary.

• The presumption is rebuttable — the accused can disprove it by adducing evidence.

• The standard for rebuttal by the accused is the civil standard — 'on a balance of
probabilities' or 'preponderance of evidence' — NOT 'beyond reasonable doubt'.
• The prosecution must first establish the foundation: (a) commission of a scheduled offence;
(b) generation of proceeds of crime; (c) possession/use/concealment etc. by the accused.
• Once this foundation is established, the burden shifts to the accused.
Section 24 was upheld as constitutionally valid in Vijay Madanlal Choudhary v. UOI (2022). The
Court held that the presumption is not absolute and the accused has ample opportunity to rebut it.
The Court relied on the public interest in combating money laundering to justify the departure from
ordinary evidentiary principles.

5.3 Section 22 — Presumption in Attachment Proceedings

Section 22 provides a specific presumption in proceedings before the Adjudicating Authority:

• Where money, bullion, jewellery or other valuable article or thing is found in the possession
or control of a person in the course of any survey, inspection or search, it shall be
presumed, unless contrary is proved, that such assets constitute proceeds of crime.

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• This creates a very strong evidentiary presumption at the stage of attachment proceedings.
• The person must show the legitimate source of the assets found.

5.4 Burden of Proof — Detailed Analysis

5.4.1 Burden on Prosecution
The prosecution (Enforcement Directorate) must establish:

• That a scheduled offence has been committed.

• That the accused is involved in a process or activity connected with proceeds of crime.
• That the accused knowingly or intentionally engaged in money laundering.
• The connection between the property and the scheduled offence.

5.4.2 Burden Shifted to Accused

Once the prosecution establishes the above, the burden shifts to the accused under Section 24 to
show:

• That the property does not constitute proceeds of crime; or

• That the property has a legitimate source; or
• That the accused was not knowingly involved in the money laundering.

5.4.3 Standard of Proof on Accused

• The accused is only required to prove his case on a 'balance of probabilities', which is a
lower standard than proof 'beyond reasonable doubt'.
• This means the accused must show that it is more probable than not that the property is not
tainted.
• The accused can rely on documentary evidence, financial records, income tax returns, and
other materials to discharge this burden.

5.5 Section 20 — Retention of Seized Property

Section 20 provides for the retention of seized property and its presumption in favour of the agency:

• Where any property is seized under Section 17 or 18, it may be retained by the authority for
180 days.
• The property is deemed to be attached under Section 5 pending confirmation or release.
• The burden on the person from whom property is seized to demonstrate legitimacy applies
even at this stage.

5.6 Presumption About Statements Under Section 50

An additional layer of presumption operates with respect to statements recorded under Section 50:

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• Statements recorded by ED officers under Section 50 are treated as admissible evidence.

• There is a presumption that the statement was made voluntarily, though this can be
rebutted.
• The retraction of such a statement does not automatically render it inadmissible — the court
evaluates the circumstances.

5.7 Interaction with Constitutional Protections

5.7.1 Article 20(3) — Right Against Self-Incrimination
The right against self-incrimination under Article 20(3) ('no person accused of any offence shall be
compelled to be a witness against himself') intersects with the PMLA presumptions in important
ways:

• The Supreme Court has held that Article 20(3) applies only to persons 'accused of an
offence' in a formal sense (i.e., after they have been formally charged/accused).
• Summons under Section 50 issued to witnesses do not attract Article 20(3) unless the
person is formally accused.
• The right to silence does not arise at the pre-accusation stage under the PMLA, as per the
Court's ruling in Vijay Madanlal.
Critical: This has been criticised by legal scholars as creating a 'twilight zone' where individuals who
are effectively suspects are summoned and must provide incriminating statements, yet are denied
the protection of Article 20(3) because they have not been formally accused. This raises serious rule
of law concerns.

5.7.2 Article 21 — Right to Life and Personal Liberty

The reversal of burden of proof under Section 24 must be compatible with Article 21. The Court in
Vijay Madanlal acknowledged that some departure from ordinary evidentiary principles is
permissible in light of the serious threat posed by money laundering to the national economy.

PART VI: OFFENCES TO BE COGNIZABLE AND NON-

BAILABLE
6.1 Section 45 — Offences to be Cognizable and Non-Bailable
Section 45(1) of the PMLA declares that all offences under the Act shall be cognizable and non-
bailable. This has far-reaching consequences for persons arrested under the Act.

6.2 Meaning of 'Cognizable Offence'

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A 'cognizable offence' is one in which a police officer (or authorised officer, in the context of PMLA)
may arrest without a warrant. The key implications are:

• The ED officer can arrest a person under Section 19 without obtaining a prior warrant from
the court.
• The officer must, however, have 'reason to believe' (recorded in writing) that the person is
guilty of an offence under Section 4.
• Making the offence cognizable allows swift investigative action, particularly important in
financial crime investigations where the accused may attempt to dissipate assets or
abscond.

6.3 Meaning of 'Non-Bailable Offence'

A 'non-bailable offence' is one in which the grant of bail is not a matter of right for the accused but is
at the discretion of the court. In the context of PMLA:

• Bail is not automatic — it must be applied for and the court has discretion to grant or refuse.
• Section 45(1)(ii) imposes the 'twin conditions' for bail: the court must be satisfied that (a)
there are reasonable grounds for believing the accused is not guilty, AND (b) the accused is
not likely to commit any offence while on bail.
• The satisfaction of both conditions is a pre-condition; failure on either count means bail must
be refused.

6.4 The Twin Conditions for Bail — Detailed Analysis

6.4.1 First Condition — Reasonable Grounds of Innocence
The court must be satisfied that there are 'reasonable grounds for believing' that the accused 'has
not committed such offence':

• This effectively requires the accused to make a prima facie case of innocence at the bail
stage itself.
• The threshold is not proof beyond reasonable doubt, but the accused must demonstrate with
some material that the allegation is unlikely to be true.
• The court applies a prima facie evaluation of the prosecution's case.

6.4.2 Second Condition — No Likelihood of Committing Offence

The court must also be satisfied that the accused is 'not likely to commit any offence while on bail':

• This is a predictive assessment and inherently difficult for the accused to demonstrate.
• Courts consider the nature of the offence, antecedents of the accused, likelihood of
tampering with evidence, and risk of flight.

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6.4.3 Special Provision for Women, Sick, and Infirm (Section 45(2))
Section 45(2) provides a limited exception: notwithstanding the twin conditions, bail may be granted
to:

• Any person under 16 years of age;

• Any woman;
• Any sick or infirm person;
• Any accused under trial for an offence which is not punishable with death or life
imprisonment.
Judicial Interpretation: Courts have interpreted the twin conditions strictly. The Supreme Court in P.
Chidambaram v. Directorate of Enforcement (2019) reiterated that the twin conditions must be
satisfied and the accused cannot claim bail as a matter of right. The court must record its
satisfaction of both conditions.

6.5 Comparison with Section 439 CrPC Bail

The PMLA bail conditions are significantly more onerous than ordinary bail under Section 437/439
CrPC:

Aspect Ordinary Bail (CrPC) PMLA Bail (Section 45)

Burden On prosecution to oppose On accused to prove innocence prima
facie
Right to bail Can be matter of right in bailable Never a matter of right — always
offences discretionary
PP Opposition Not mandatory PP must be given opportunity to
oppose
Standard Courts weigh flight risk, tampering etc. Twin conditions must BOTH be
satisfied
Exceptions Limited exceptions Women, minors, sick/infirm exempt

6.6 Section 46 — Application of CrPC to PMLA Offences

Section 46 provides that the provisions of the Code of Criminal Procedure, 1973 shall apply to the
arrest, remand, bail, and other procedural matters under PMLA, insofar as they are not inconsistent
with the provisions of the PMLA:

• Section 50A of PMLA: Provisions of Sections 41A, 41B, 41C, and 41D CrPC apply to arrests
under PMLA.
• These provisions relate to issuing notice in lieu of arrest, the duty of the arresting officer,
medical examination, and legal aid to arrested persons.
• The PMLA's specific provisions prevail over CrPC in case of conflict.

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6.7 Section 4 — Punishment for Money Laundering

The offence of money laundering (Section 3) is punishable under Section 4:

• Rigorous imprisonment for a term not less than 3 years and up to 7 years.
• Where the scheduled offence is one of the offences specified under Part A of the Schedule
relating to the Narcotic Drugs and Psychotropic Substances Act, 1985, imprisonment may
extend to 10 years.
• Fine may also be imposed.
• The minimum sentence of 3 years is mandatory, which means the courts have no discretion
to award less than 3 years.

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PART VII: VIJAY MADANLAL CHOUDHARY v. UNION OF INDIA

(2022)
A Comprehensive Analysis in Light of the Topics Covered in Weeks 6 & 7

7.1 Case Background and Citation

Full Citation: Vijay Madanlal Choudhary & Ors. v. Union of India & Ors., 2022 SCC OnLine SC 929,
decided on July 27, 2022 by a three-judge bench of the Supreme Court of India consisting of
Justices A.M. Khanwilkar, Dinesh Maheshwari, and C.T. Ravikumar.

This is perhaps the most significant judgment on the PMLA since its enactment. A batch of over 240
petitions challenged virtually every major provision of the PMLA on constitutional grounds. The case
involved persons charged under PMLA from diverse backgrounds — including politicians,
businesspersons, and others — who collectively challenged the constitutionality of the enforcement
regime.

7.2 Constitutional Challenges Raised

The petitioners raised the following key constitutional challenges, all relevant to the topics covered
in Weeks 6 and 7:

7.2.1 Regarding Adjudicating Authorities

• Challenge: The Adjudicating Authority under Section 6 lacks independence and is not
insulated from executive influence, making it an unconstitutional delegation of judicial power.
• Challenge: The Authority's members do not need to be judicial officers, undermining the
quality of adjudication.
• Challenge: The composition and procedures lack adequate safeguards, violating principles
of natural justice.

7.2.2 Regarding Summons and Statements (Section 50)

• Challenge: Compelling accused persons to appear before ED officers and provide
statements violates Article 20(3) (right against self-incrimination).
• Challenge: ED officers function as police officers and hence confessions/statements
recorded by them should be inadmissible under Section 25 of the Evidence Act.
• Challenge: The manner in which summons are used to coerce statements amounts to
custodial interrogation without the safeguards of a formal arrest.

7.2.3 Regarding Search and Seizure (Sections 17, 18)

• Challenge: Section 17 allows searches without adequate judicial oversight.

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• Challenge: The phrase 'reason to believe' is vague and subjective, failing to provide
adequate standards.
• Challenge: The power to search persons (Section 18) without a warrant is disproportionate.

7.2.4 Regarding Arrest (Section 19)

• Challenge: Arrests under Section 19 can be made without supplying the ECIR to the
arrested person, violating the right to know grounds of arrest under Article 22(1).
• Challenge: The non-sharing of ECIR prevents the accused from effectively challenging the
arrest, violating Article 21.
• Challenge: ED custody remand (ECR) is not provided for in the statute and is therefore
illegal.

7.2.5 Regarding Bail — Twin Conditions (Section 45)

• Challenge: The twin conditions in Section 45 effectively make bail impossible to obtain,
amounting to pre-trial punishment, violating Articles 14 and 21.
• Challenge: The twin conditions, which require the court to be satisfied that the accused is
likely innocent, reverse the fundamental presumption of innocence.
• Challenge: The 2018 amended Section 45, while removing the connection to specific
scheduled offences, retained the twin conditions and is still unconstitutional for the same
reasons as struck down in Nikesh Tarachand Shah (2018).

7.2.6 Regarding Presumptions and Burden of Proof (Section 24)

• Challenge: Section 24 reverses the burden of proof, violating the presumption of innocence
which is an integral part of fair trial rights under Article 21.
• Challenge: The prosecution's obligation to prove the commission of the predicate offence
and the nexus to proceeds of crime is insufficient, making the presumption work against the
accused with inadequate foundation.

7.2.7 Regarding Cognizability and Non-Bailability (Section 45(1))

• Challenge: Declaring all PMLA offences cognizable and non-bailable, irrespective of the
gravity of the specific act, is arbitrary and violates Article 14.

7.3 Supreme Court's Rulings — Issue by Issue

7.3.1 On Adjudicating Authorities

Holding on Adjudicating Authorities

The Supreme Court upheld the constitutional validity of the Adjudicating Authority under
Section 6. The Court held:

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• The Adjudicating Authority is a quasi-judicial body, not a court, and the Constitution
does not require all adjudicatory bodies to have the composition of courts.
• The requirement that the Chairperson be or have been a High Court Judge provides
adequate judicial character.
• The principles of natural justice (opportunity to be heard, reasoned orders) are
embedded in the Act and are sufficient safeguards.
• Parliament has wide latitude in designing enforcement mechanisms for economic
offences, and such legislative choices must be respected unless they are arbitrary.

7.3.2 On Section 50 — Summons and Statements

Holding on Section 50
This was perhaps the most significant ruling on summons. The Court held:
• ED officers are NOT police officers within the meaning of Section 25 of the Evidence
Act. Therefore, statements recorded under Section 50 are admissible as evidence.
• Section 50 does not violate Article 20(3) because the protection against self-
incrimination applies only to persons who are formally 'accused of an offence'. A person
summoned as a witness (even if a suspect) is not yet 'accused'.
• The Court drew a distinction between 'compelled testimony' (which is prohibited) and
'voluntary statements' made during investigation. The Court held that statements under
Section 50 are essentially voluntary in that the person is not under the coercion of
arrest.
• Critically: The Court distinguished the PMLA summons from custodial interrogation,
holding that a person summoned under Section 50 is free to leave after recording his
statement, and hence is not 'in custody'.

Criticism: This ruling has been widely criticised by civil liberties scholars. In practice, persons
summoned under Section 50 multiple times face intense pressure, and the distinction between
'summoned witness' and 'accused' is blurred. The ruling creates a paradox where the accused's
statement before the ED is admissible, but his statement before the police is not, giving the ED a
coercive tool unavailable to ordinary police.

7.3.3 On Search and Seizure

Holding on Sections 17 and 18

The Court upheld Sections 17 and 18, holding:
• The 'reason to believe' standard — requiring written recording of reasons — is an
adequate constitutional safeguard and prevents arbitrary searches.
• The Act does not require prior judicial authorisation for searches because the
requirement of written reasons (which are transmitted to a supervisory authority)
provides sufficient accountability.

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• The search of persons under Section 18, including the safeguard of taking the person
before a gazetted officer/magistrate, is proportionate to the goal of preventing
dissipation of proceeds of crime.

7.3.4 On Arrest — Section 19 and ECIR

Holding on Section 19 and ECIR

The Court's rulings on arrest (Section 19) and ECIR are highly significant:
• ECIR is an internal document of the ED, analogous to an FIR but not equivalent to it.
The accused does not have a right to a copy of the ECIR as a matter of course.
• Article 22(1) requires communication of 'grounds of arrest', not the entire investigative
file. Since the arrested person is informed of the grounds of arrest, the non-disclosure
of the ECIR does not violate Article 22(1).
• ED Custody Remand: The Court upheld the practice of ED remand, holding that
Section 167 CrPC (as applicable through Section 46 PMLA) allows remand into ED
custody for purposes of investigation.
• The Court emphasised that the requirement of 'reason to believe' (recorded in writing)
under Section 19 is a substantive safeguard against arbitrary arrests.

Post-Vijay Madanlal Development: In October 2022, the Supreme Court agreed to reconsider some
of its findings, particularly on the issue of supply of ECIR and grounds of arrest, after criticism from
various quarters. The matter was referred to a larger bench on some issues.

7.3.5 On Twin Conditions for Bail (Section 45)

Holding on Twin Conditions for Bail

The Court upheld the twin conditions under Section 45, holding:
• The 2018 amendment to Section 45 — which removed the earlier provision struck down
in Nikesh Tarachand Shah — is constitutionally valid.
• The twin conditions apply to ALL offences under PMLA, not just those referable to
specified scheduled offences. This was a key clarification.
• The restrictions on bail are justified given the gravity and economic impact of money
laundering, the ease with which proceeds can be dissipated, and the complexity of
investigation.
• The Court distinguished money laundering from ordinary offences, noting that money
launderers often have significant financial resources to abscond or tamper with
evidence.

7.3.6 On Presumptions and Burden of Proof (Section 24)

Holding on Section 24 — Burden of Proof

The Court upheld Section 24, holding:

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• The presumption under Section 24 is rebuttable and the accused has ample opportunity
to lead evidence to disprove it. It does not amount to an irrebuttable presumption of
guilt.
• Statutory reversal of burden of proof is permissible under the Constitution when there is
a clear public interest, when the prosecution has discharged a preliminary burden
(establishing predicate offence and nexus), and when the accused has special
knowledge of the facts.
• The Court relied on comparable provisions in the NDPS Act, the Prevention of
Corruption Act, and international conventions to justify the reversal.
• Importantly: The Court held that the prosecution must first establish the commission of
a predicate offence (scheduled offence) and the generation of proceeds of crime before
Section 24 comes into play. Only then does the burden shift to the accused.

7.3.7 On Cognizability and Non-Bailability

Holding on Section 45(1) — Cognizable and Non-Bailable

The Court upheld the declaration in Section 45(1) that PMLA offences are cognizable and non-
bailable:
• Parliament has the power to classify offences as cognizable and non-bailable based on
the gravity and nature of the offence. Money laundering, being a serious economic
offence with potential to destabilise the financial system, justifies this classification.
• The classification is not arbitrary under Article 14 because it applies to all persons
accused of money laundering, regardless of social status, based on a rational nexus to
the legislative object.
• The Court noted that declaring an offence non-bailable is not punitive per se; it is a
procedural classification that helps the court manage the risk of the accused evading
justice.

7.4 Critical Evaluation of the Judgment

7.4.1 Significance
• The judgment comprehensively upholds the PMLA enforcement regime, giving the ED broad
powers with few curbs.
• It settles major constitutional questions that had left the law in uncertainty for years.
• The Court balanced enforcement needs with constitutional safeguards by reading in certain
requirements (e.g., written reasons for arrest, communication of grounds of arrest).
• The judgment aligns India's anti-money laundering regime with international best practices
and FATF standards.

7.4.2 Criticisms
• Over-deference to executive: Critics argue the Court excessively deferred to the legislative
and executive judgment on matters affecting fundamental rights, particularly personal liberty.

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• Admissibility of Section 50 statements: The ruling that ED officers are not police officers and
hence Section 50 statements are admissible creates a parallel coercive investigation system
without ordinary safeguards.
• ECIR non-disclosure: Denying the accused access to the ECIR (equivalent of FIR) at the
time of arrest is seen as fundamentally undermining the right to know grounds of arrest
under Article 22(1).
• Twin conditions for bail: Civil liberties groups argue that the twin conditions amount to pre-
trial punishment given the difficulty of securing bail in complex financial crime cases that
take years to conclude.
• Broad definition of proceeds of crime: The Court's interpretation of 'proceeds of crime' very
broadly (to include assets generated through or used in money laundering) has been
criticised as making the statute's reach excessively wide.

7.4.3 Subsequent Developments

• In October 2022, the Supreme Court agreed to reconsider the judgment, especially on the
issue of supply of grounds of arrest in writing to the arrested person.
• The Court partly modified its judgment to require supply of written grounds of arrest to the
arrested person, acknowledging that Article 22(1) requires this.
• The matter of the ECIR has been referred to a larger bench.
• The judgment continues to be the primary reference point for PMLA jurisprudence.

7.5 Summary Table: Vijay Madanlal on Key PMLA Provisions

Issue / Section Challenge Raised SC Holding
Adjudicating Authority Lacks independence; Upheld — quasi-judicial nature
(S.6) unconstitutional delegation and safeguards sufficient
Summons & Statements Violates Art.20(3); ED officers are Upheld — ED not police; Art.20(3)
(S.50) police officers inapplicable to witnesses
Search of premises (S.17) No judicial oversight; arbitrary Upheld — 'reason to believe'
written requirement sufficient
Arrest (S.19) ECIR not supplied; grounds Partially upheld; later modified to
unclear require written grounds
Twin Bail Conditions Unconstitutional; violates Arts. 14 Upheld — applies to ALL PMLA
(S.45) & 21 offences; justified by gravity
Burden of Proof (S.24) Reverses presumption of Upheld — rebuttable
innocence presumption; prosecution must
lay foundation
Cognizable & Non-bailable Arbitrary; no classification basis Upheld — rational basis in gravity
(S.45(1)) of offence

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CONCLUSION
The Prevention of Money-Laundering Act, 2002, as interpreted by the Supreme Court in Vijay
Madanlal Choudhary v. Union of India (2022), represents one of the most potent enforcement
regimes in Indian law. The Act's architecture — combining attachment, adjudication, stringent bail
conditions, reversed burden of proof, and broad investigative powers — creates a comprehensive
framework to combat money laundering.

The adjudicating authorities serve as the backbone of the enforcement system, ensuring that
attachment and confiscation are subject to quasi-judicial oversight rather than being purely
executive actions. The powers of summons, search, seizure, and arrest — while expansive — are
circumscribed by procedural safeguards including the requirement of 'reason to believe' recorded in
writing and compliance with natural justice principles.

The twin conditions for bail under Section 45 and the reversal of burden of proof under Section 24
represent the most significant departures from ordinary criminal law. The Supreme Court in Vijay
Madanlal has upheld these provisions, drawing on the extraordinary nature of the money laundering
menace and India's international commitments.

However, the judgment has also attracted scholarly and civil society criticism for tilting the balance
excessively in favour of enforcement at the cost of civil liberties. The ongoing reconsideration of
certain aspects by the Supreme Court suggests that the legal landscape around the PMLA will
continue to evolve.

For law students and practitioners, the interplay between the PMLA's stringent provisions and
constitutional guarantees — particularly Articles 14, 20(3), 21, and 22 — remains the defining
jurisprudential challenge of this area of law.

END OF NOTES
Prevention of Money-Laundering Act, 2002 — Week 6 & 7 Comprehensive Notes

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