Solicitor General Tushar Mehta on Tuesday told the Supreme Court that merely because Section 19 of the Prevention of Money Laundering Act (PMLA) does not adhere to CrPC, does not mean it is unconstitutional.
A Bench comprising Justice A.M. Khanwilkar, Justice Dinesh Maheshwari and Justice C.T. Ravikumar were hearing the submissions of the SG on PMLA.
SGI- The legislature has rightly taken away the basis on which Nikesh Tarachand was decided. He took the court on the path of how Nikesh Tarachand could not be a good law. Section 19 is the power of arrest and it is put to challenge that it is vires Article 14 and 21 of the Constitution. No provision can be unconstitutional because it is inconsistent with the CrPc. It has to be constitution compliant. He drew attention of this court to Section 2[o] and Section 2[s] of the CrPC which define “officer in charge of a police station” and “police station” respectively. It is territory specific as opposed to Money Laundering offences which are trans-border. The power of arrest under PMLA can be exercised by designated authority. The authorities under Section 48 of the Act will be able to exercise the power namely:
(a) Director or Additional Director or Joint Director, (b) Deputy Director, (c) Assistant Director, and (d) such other class of officers as may be appointed for the purposes of this Act.
The director is appointed under Section 25 of the Central Vigilance Commission Act, 2003 wherein the SGI explained the fact that an officer of a certain rank can only perform certain functions. This made the provision not arbitrary; since an officer at a high position
like that not only showcases his wisdom but also experience in the field. SGI further went onto explain the in-built safeguards mentioned in Section 19-
a) Conferring powers only on the Statutory Authority unlike CRPC.
b) The second inbuilt safeguard is existence of “material in possession” without which the power cannot be exercised.
c) The third inbuilt safeguard is the “reason to believe” about the person being arrested, being guilty of an offence punishable under PMLA. The Cr.P.C., in contrast merely requires reasonable apprehension/suspicion of commission of offence.
d) The fourth safeguard is a mandate contained in section 19 itself that such reasons to believe – based upon the material in his possession – shall have to be reduced in writing.
e) The fifth inbuilt safeguard is the requirement of informing the person being arrested of the grounds of his arrest.
f) The sixth inbuilt safeguard is the duty cast upon the statutory authority effecting arrest to forward (i) a copy of the order of arrest and (ii) material in his possession- to the adjudicate authority in a sealed envelope.
g) The seventh safeguard which is inbuilt is production of the arrested person before the Special Court or the Magistrate within 24 hours.
He further submitted that since there is nothing contrary to Section 167 of the Code of Criminal Procedure in PMLA, the provisions of remand contained in section 167 CrPC would also apply as there is nothing contrary in PMLA. These are the 7 safeguards which gurard against any attack on the basis of Articles 14 and 21 of the Constitution.
Argument- Whether Arnesh Kumar applies or not?
It says, you issue a notice under Section 41 (a) CRPC. It is relatable to 41 PMLA where threshold of power of arrest is very low.
The counsel made 3 important submissions in context of section 41 (a) and why it would not apply-
The nature of offence is such that the moment the accused gets to know that the authority is investigating the evidence will vanish in a matter of just a few seconds.
1- 41a on its terms cannot apply in light of sec 65 and 71 of PMLA which excludes CrPC for anything being inconsistent.
2- Reason- sec19 excludes applicability of 41A.
3- Reading the requirement of 41a would make the very intent of object under sec 19 meaningless because the purpose is not to alert the person who is to be arrested or is witness against the main accused.
On the other hand, 41(b) may apply as nothing inconsistent with PMLA.
Hon’ble Justice AM Khanwilkar ‘under terms of CrPC provision what is furnished to the accused at the time of arrest?’ To which the counsel replied that there is no such provision in CrPC.
The bench put primary emphasis on the fact that according to the provisions of constitution of India, PMLA and CrPC the
ground for arrest is to be made clear and not the material for arrest. However, in PMLA material is not required to be furnished under PMLA which remarks the departure.
To which counsel replied that this provisions is primary for pmla cases since maintaining secrecy is a primary need for this crime to be convicted. Therefore, PMLA, Constitution of India and CrPC are consistent to each other in this regard.
- The counsel further went onto explain how FIR case culminates into chargesheet or challan however in other cases it results into a complaint and a complaint is the end point of an investigation subject to further investigation. Therefore, stating that one cannot arrest till the competition of investigation is turning the inventive language of the act. (With reference to Section 19 and section 44(1)(b).
- Justice A.M. Khanwilkar enquired ‘While considering bail application the judge needs to see the material which is the basis of ground of arrest. However, under PMLA the same is not made available to the judge’.
To which the counsel gave his submission wherein he submitted the material is kept confidential only from the arrested and not the court; the individual is produced before the learned judge.
- The counsel also referred to Section 19 in order to explain how the maintenance of secrecy from the accused is not only important but also granted by the law. The counsel stated that the Existence of material is important, sufficiency cannot be gone into at that stage of proceeding.
The counsel contented that the power of arrest is not abused. It is statutory in nature. The section provides the custom officers with various boundaries. The law on one hand provides the custom officer with the power of arrest and on the other hand takes due care to ensure freedom and liberty by laying down norms and provisions safeguarding the misuse or abuse of power of arrest. (Various case laws were referred by the counsel in order to support the same argument).
SUBMISSION- CRPC will apply as long as it is consistent with the PMLA provisions. Section 19 provides for several inbuilt safeguards and therefore does not suffer from arbitrariness and therefore would not be invalid or unconstitutional. Arnesh kumar vs. State of Bihar would not apply to arrest under PMLA as the principles in Arnesh Kumar have been developed keeping in mind the lower threshold in Cr.P.C. in order to avoid misuse due to the high possibility of arrest in all cases.
Argument 2 – VALIDITY OF SECTION 45-
The counsel contented that there is a concept of taking away the basis of the judgement. And there are two grounds on which a provision can declare a provisions to be unconstitutional-
a- On the ground that a legislature formulating the law was not competent.
b- It offends a provision from chapter III.
Under ‘a’ all gets repealed, however, under ‘b’ it does not get wiped off it becomes inoperative. Nikesh Tarachand Shah case by the counsel was cited to showcase the basis for declaring the provision to be unconstitutional and how the basis for the same was removed (one offending PART III). A comparative chart was used by the counsel in order to facilitate the argument.
The counsel further went onto explain how the removal of basis can be formulated. The counsel referred to various case laws in order to support his argument stating that, validation of a provision so declared illegal will be done only if the grounds of illegality are capable of being removed and are in fact being removed. The counsel also stated that the exercise of rending ineffective by the competent court by changing the very basis by legislation is a well-known device for validating legislation. Such validating legislation removing the cause of invalidity cannot be considered to be an encroachment on judicial powers. In the year 1969, the Hon’ble Supreme Court speaking through a Constitution Bench in Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality [(1969) 2 SCC 283 laid down a proposition of law that has been followed consistently over the years. The same is regarded as the doctrine of taking away the basis or validating acts. The meaning of a Validation Act is to remove the causes for ineffectiveness or invalidity of actions or proceedings which are validated by a legislative measure. in the case of State of Bombay v. F.N. Balsara [(1951) SCR 682 Aiyar J. held that Article 13(1) of the Constitution only placed a check on a competent legislature and therefore the word “void” in that article meant “relatively void” i.e. the law only condemned the Act as wrong to individuals and refused to enforce it against them.
The counsel also referred to the Indian Aluminum company case which states the same thing.
The counsel went onto read the principles generating from the following judgements-
a- The adjudication of rights of parties is an essential judicial function.
b- Legislature has to lay down the norms and rules of conduct which govern the parties.
c- Constitution exercise of sovereign power by legislature, executive and judiciary.
d- Legislature exercise the power under 245, 246 and other articles.
Further, the advocate went on to point how the court needs to carefully scan the law in order to find out-
a- Whether the invalidity pointed out by the court suffered by previous law is cured complying with the legal requirements.
b- Whether the legislature has competence to validate the law
c- Whether such validation is consistent with the right s guaranteed under part III.
The court does not have the power to validate an invalid law. In exercising legislative power, the legislature by mere declaration cannot directly overrule, override or revise a judicial decision. (Reference- Nikesh Tarachand Shah case along with various other cases).
The counsel went to define the Sec3 offence of money laundering. The counsel went to point out the fundamental difference between the bill and the Act which in turn has a great bearance on the constitutionality of validity of Section45(1).
The Balsara case was referred wherein 3 important points
needed to be considered-
a- The constitutionality had to be presumed.
b- The categorization of offences is the domain of the parliament.
c- Parliament has a power to classify offences and offenders for legitimate purpose if there is reasonable nexus with the objective.
The classification done in the act was found to be conducted on basis of intelligible differtia.
Further, the counsel went onto rely on the judgment delivered in Shayara Bano case for manifest Arbitrariness. The counsel contented how the term ‘manifest arbitrariness’ is itself an arbitrary and vague term with no precise definition or judicially manageable standards. Therefore, the same cannot be applied here.
The consel went onto to explain the necessary conditions for the application of sec 45-
- Part I dealing with attempt to wage war or Waging war
- Part II dealt with Narcotics drugs and psychotropic substance Act.
The counsel went onto explain 3 illustrations in order to explain the application of SECTION 45.
The counsel contented that the Application of 45 in twin conditions is made dependent upon a part of predicate offences. Manifestly, Arbitrary, discriminately and unjust results would arise on the application or non-application of Section 45 and would directly violate article 14 and 21 in as much as the procedure would become harsh and discriminatory depending upon whether a person id being tried for an offence which also happens to be an offence under Part A of the schedule or an offence under Part A together with an offence under 2002 Act. The grant of bail would depend on a circumstance which has nothing to do with the offence of money laundering however because it was a predicating offence the subject matter is crossed. The counsel contented that this ground alone is enough to struck down for being manifestly arbitrary. (TADA ACT NDPS Act were also referred for the same argument).
The consel went on to contend that when it comes to Section 45 it is clear that a classification based on sentencing a scheduled offence would have no rational the grant of bail for the offence of money laundering.
Section 437 as well as section 439 were also discussed in detailed.
Justice CT Ravikumar pointed out from the Nikesh Tarachand Shah judgement wherein Section 45 per se remains on the statute book.
There appears to be two reasons based on which this Hon’ble Court struck down section 45(1) of the PMLA in Nikesh Tarachand:
a classification based on sentencing of the scheduled offence [as it existed at that time] was found to have no nexus with the objective of PMLA, thereby rendering it to be manifestly arbitrary or unjust and violative of Article 14 of the Constitution of India;
(ii) since the application of the twin conditions in section 45(1) was restricted only to a particular class of offences within the PMLA i.e. offences punishable for a term of imprisonment of more than three years under Part-A of the Schedule, and not to all the offences under the PMLA, such an indiscriminate application of the twin conditions on bail as prescribed under section 45(1) would lead to a violation of rights enshrined under Article 21.
The counsel went onto explain the same taking reference of various landmark judgments wherein the counsel concluded that Section 45 is unenforceable (reference to Nikesh Tarachand Shah).
If the provisions of a law disregard the constitutional prohibition i.e., art 14 and art 21 then the law would be unenforceable due to those prohibitions. However, once they are removed the law will become effective without reenactment.
The consel also contented that when an enactment is unconstitutional in part (enactment PMLA) but valid as tool assuming the part is severable it cannot be held to have wiped out of the statue book as it admittedly must remain there for the purpose of enforcement of the valid purpose.
Submission- Two conditions per se are not declared unconstitutional they are unconstitutional because the legislature as it stood then connected the conditions with predicating offence only a part of predicate offence and not at all a predicate offence as under the act.
However, the basis of declaring the twin condition unconstitutional was 45(1) which in present time has been rectified.
To which Justice AM Khanwilkar objected saying that the twin conditions weren’t the only condition leading to the unconstitutionality of 45, Arbitrariness, discriminatory and unjust were the grounds.
As a response to which the counsel assessed the court to a chart wherein various such acts were listed.
Ranjeet Singh judgement was cited by the consel in order to state ‘There can be a legislative device whereby some particular kind of crime can be classified separately and given a separate treatment inter alia on the ground of conditions of bail.’
Furthermore, the counsel went on to cite the Kartar Singh Judgement in order to make a reference to the test of reasonable classification.
The consel stated that Economic offenders constitute a separate class in themselves veld therefore it is a reasonable classification for an object which the legislature seeks to achieve. The international communities deal only with globally recognised issues and money laundering is one among them.
A legislative policy unless it is shockingly arbitrary that it can never withstand the scrutiny or there is no relation btw the object
and the policy the judiciary would normally interference.
The counsel went on to invoke the legitimate state interest doctrine; the liberty of the individual has to be subordinated within reasonable bounds for the good of the country. Severability of the offence has to be considered as well (the length of imprisonment might not be the best criteria to decide the severability of the offence. The fact that Money laundering possess a serious threat to not only to financial institution of the countries but also to their sovereignty highlights the seriousness of the crime.
Hon’ble Justice A.M. Khanwilkar to address Whether 436A will have an application to the PMLA Offences in tomorrow’s argument.
The hearing for Argument 2- to be continued tomorrow.