Vijay Madanlal Choudhary v. Union of India, (2022) 10 SCC

Case Title: Vijay Madanlal Choudhary v. Union of India, (2022) 10 SCC 24

Court: Supreme Court of India

Bench: A.M. Khanwilkar, Dinesh Maheshwari, C.T. Ravikumar, JJ.

Date of Decision: 27 July 2022

Introduction

The landmark judgment in Vijay Madanlal Choudhary v. Union of India,¹represents a  watershed moment in the jurisprudence surrounding India’s anti-money laundering framework.  It upheld the constitutionality of several contentious provisions under the Prevention of Money  Laundering Act, 2002 (PMLA), thereby bolstering the Enforcement Directorate’s (ED)²

powers in tackling economic offences. The decision came in response to over 240 petitions  challenging the constitutional validity of provisions such as Section 5,³ which deals with the  provisional attachment of property; Section 8(4),⁴ which empowers the authorities to confirm  such attachments and proceed with confiscation; Section 17,⁵ which authorizes search and  seizure operations; Section 19,⁶ which enables arrest without prior judicial approval; and  Section 24,⁷ which reverses the burden of proof on the accused. Among the lead petitioners  was Vijay Madanlal Choudhary, a businessman facing proceedings under the PMLA, whose  name came to represent the consolidated challenge before the Court. The Supreme Court, in a  detailed and expansive judgment, ruled in favour of the Union government, asserting the  necessity of a stringent legal framework to combat the menace of money laundering.

This case comment seeks to provide a comprehensive analysis of the judgment by unpacking  the legal questions, the judicial reasoning, the arguments advanced, and the implications for  constitutional law, individual liberty, and financial regulation in India. It further contextualizes  the verdict in light of global standards such as the Financial Action Task Force (FATF)  recommendations, and compares it with international jurisprudence.

Moreover, the case’s impact resonates beyond criminal law. It questions the role of judicial  deference in economic legislations and emphasizes the balance between liberty and regulatory  expediency. With India aspiring to become a global financial hub, legal certainty and  procedural fairness are essential pillars.

Factual Background

The case arose against the backdrop of rising concerns over the perceived arbitrariness of the  ED’s functioning and the growing number of arrests and property seizures under PMLA  without sufficient judicial oversight. The petitioners, including Vijay Madanlal Choudhary and  other accused persons facing proceedings under the PMLA, contended that the provisions of  the Act were being misused to target individuals without adhering to due process norms.⁸

India’s tightening of its anti-money laundering apparatus was not merely domestic. The  FATF’s 2010 and 2013 mutual evaluation reports raised questions about India’s effectiveness⁹ in enforcement. This prompted legal amendments expanding ED’s powers without  correspondingly expanding checks and balances.

The petitioners argued that the draconian nature of PMLA’s powers coupled with absence of  procedural fairness, especially the lack of provision for bail, tilted the law towards executive  supremacy rather than constitutional governance.

Several individuals facing proceedings under the PMLA filed petitions in different High  Courts, questioning the constitutionality of key parts of the law. Since the challenges were  similar, the Supreme Court decided to group them together. A special bench was set up to hear the matter, and after lengthy arguments spread over months, the Court delivered its decision in  July 2022.

Legal Issues

The Supreme Court identified and addressed the following primary constitutional issues:

1. Whether the provisions of the PMLA, particularly those relating to attachment, confiscation, arrest, and evidentiary presumptions, infringed fundamental rights under Articles 14, 19, 20, and 21 of the Constitution.¹⁰
2. Whether non-supply of ECIR to the accused was violative of the right to fair trial,¹¹ under Article 21.
3. Whether the reverse burden of proof under Section 24⁷ was compatible with the presumption of innocence.
4. Whether the ED’s² unregulated powers were susceptible to misuse and lacked judicial accountability.
5. Whether PMLA, by virtue of its overarching nature, had usurped the field of preventive detention and thus required stronger scrutiny.
6. Arguments of the Parties

Petitioners’ Contentions:

• The petitioners asserted that the ED was functioning in a non-transparent and arbitrary manner¹².
• The ECIR, unlike the FIR under CrPC, was not disclosed to the accused, thereby denying them an opportunity to prepare their defence.
• Section 24 of the Act, which places the burden of proof on the accused, was argued to be inconsistent with the constitutional guarantee of presumption of innocence. Insupport, the petitioners relied on Indra Das v State of Assam,¹³ where the Supreme  Court held that statutory presumptions which shift the burden of proof to the accused  must withstand the test of reasonableness under Articles 14 and 21. 
• Section 19,⁶ which allowed arrest without prior judicial scrutiny, was alleged to be violative of Article 21.¹⁰
• The petitioners further argued that attachment of property without prior judicial review constituted an excessive delegation of power.

Respondent’s Arguments:

• The Union of India, defending the legislation, argued that money laundering is a serious economic offence with transnational implications, necessitating a stricter framework. 
• The PMLA is a special law meant to deal with economic offences and therefore justifiably prescribes a different procedural regime.
• The ED operates under strict statutory guidelines and its actions are subject to judicial review.
• Disclosure of ECIR would compromise investigations and was not required under the statute.
• The reverse burden of proof is permissible in special laws dealing with grave offences, citing international conventions like the UN Convention Against Corruption¹⁴.
• Court’s Analysis and Reasoning
• Reverse Burden of Proof (Section 24)

The Court upheld the reverse burden clause, noting that economic offences often involve  complex transactions and concealment of funds, which necessitate the accused to provide an  explanation. In upholding the constitutionality of Section 24,⁷the Court drew support from its ruling in Noor Aga v State of Punjab¹⁵, where a reverse burden clause under the NDPS Act¹⁶ was sustained, provided that the prosecution first establishes foundational facts.

The Court also referenced the UK decision in R v Director of the Serious Fraud Office¹⁷, which  upheld statutory presumptions in financial crime legislation, affirming that reverse burdens are  permissible when tailored to the complexity of economic offences.

ECIR and Right to Fair Trial

The Court ruled that ECIR is an internal document akin to a preliminary inquiry report and  cannot be equated to an FIR. Therefore, non-supply of ECIR does not violate the rights of the  accused. The Court observed that procedural safeguards under PMLA are adequate when  balanced against the object of the Act. This conclusion, however, has been widely criticised by  scholars like Bhatia and Varadarajan,¹⁸ who argue that this undermines the ‘audi alteram  partem’ principle, a keystone of Article 21.¹⁰

Arrest and Attachment Powers (Sections 5, 8, 17, 19)

Upholding these sections, the Court emphasized that such powers are necessary for effective  investigation and prevention of money laundering. It was reasoned that sufficient in-built  safeguards, such as the requirement for recording reasons and subsequent confirmation by the  Adjudicating Authority, reduce the risk of misuse.

However, critics argue that The Standing Committee on Finance, in its 2018–19 report,¹⁹ raised  concerns that the Adjudicating Authority under the PMLA lacked institutional independence  and functioned more as an executive arm than a quasi-judicial body.

Special Law and Due Process

The Court invoked the doctrine of lex specialis, reiterating that special legislation is permitted  to depart from the general criminal procedure, particularly when aimed at addressing distinctive  categories of offences such as economic crimes. This doctrinal approach enables procedural  flexibility without necessarily undermining constitutional safeguards.

In support of this principle, the Court relied on Kartar Singh v State of Punjab,²⁰ where it  upheld the constitutional validity of stringent provisions under the (TADA)²¹, recognising that  grave offences may justify a departure from conventional procedural norms.

Judgment

In its 545-page verdict, the Supreme Court upheld the constitutionality of the PMLA in nearly  all respects, asserting that the legislation had sufficient procedural safeguards and that the  provisions must be interpreted in light of the objective of curbing the serious threat of money  laundering. The judgment was unanimous.

Key Findings:

• On Section 19 (Power to Arrest): The Court found that the ED’s power to arrest was subject to internal procedural safeguards and post-arrest judicial review, hence not violative of Article 21. In addressing concerns about potential misuse of arrest powers  under Section 19 of the PMLA, the Court invoked the safeguards articulated in D.K.  Basu v State of West Bengal,²² wherein the Supreme Court laid down detailed  procedural requirements to protect the right to life and personal liberty under Article  21,¹⁰ emphasizing that any deviation from these safeguards would be subject to strict  judicial scrutiny.
• On ECIR Non-Disclosure: ECIR was declared an internal document akin to an intelligence report. While acknowledging that the FIR under CrPC is mandatorily supplied, the Court distinguished ECIR and justified non-disclosure in the interest of  secrecy in economic crime investigations.
• The Court affirmed that the reverse burden clause under Section 24 of the PMLA is legally sustainable, provided it is triggered only after the prosecution discharges its initial burden by proving foundational facts beyond reasonable doubt. To support this  reasoning, it cited Ranjitsing Brahmajeetsing Sharma v State of Maharashtra,²³ where  the Court upheld similar evidentiary presumptions under the Maharashtra Control of  Organised Crime Act (MCOCA),²⁴ clarifying that such provisions do not violate the  presumption of innocence when read in conjunction with constitutional due process.
• On Sections 5³ and 8⁴(Provisional Attachment and Confirmation): The Court held that attachment of property without prior judicial authorization does not violate Article 300A²⁵ as long as procedural safeguards are adhered to.

The ruling was a comprehensive endorsement of the ED’s powers under PMLA. However, it  left open the question of misuse and emphasized the need for accountability through judicial  review mechanisms.

Subsequent Developments: The Pankaj Bansal Correction

In Pankaj Bansal v Union of India²⁶, a three-judge bench of the Supreme Court reconsidered  the procedural validity of Section 19 of the PMLA in light of constitutional protections under  Article 22(1)²⁷. Departing from the position in Vijay Madanlal Choudhary, the Court held that  the Enforcement Directorate is obligated to furnish a written copy of the grounds of arrest to  the accused at the time of detention, thereby reinforcing the right to be informed and ensuring  procedural transparency.

The ruling explicitly stated:

“The expression ‘as soon as may be’ occurring in Section 19(1)⁶ must be read contextually with  the right to be informed in writing of the grounds of arrest.”

This decision was widely welcomed as a correction that harmonized PMLA procedures with  Article 22(1)²⁷ of the Constitution and the D.K. Basu guidelines.

The Pankaj Bansal ruling thus signalled that the Court remains sensitive to the evolution of  procedural fairness, even while upholding the constitutionality of stringent laws.

Comparative Jurisprudence and International Norms

India’s alignment with the Financial Action Task Force (FATF) ²⁸ Recommendations has  played a pivotal role in shaping the contours of the PMLA, particularly in relation to  investigative and enforcement architecture. The FATF, through its 40 Recommendations, urges  member countries to implement stringent anti-money laundering mechanisms, including  preventive, investigative, and punitive tools.

However, in most liberal democracies:

• Disclosure of the grounds of arrest is constitutionally required.
• Investigative agencies operate under the supervision of independent bodies.
• Procedural safeguards, like the right to silence and legal representation from the moment of arrest, are non-derogable.

United Kingdom:

The UK’s Proceeds of Crime Act 2002 allows for confiscation of property linked to criminal  conduct but requires strict judicial oversight and upholds the right of the accused to actively  contest such action.²⁹ In Serious Fraud Office v XYZ Ltd,³⁰ the Court of Appeal underscored  the principle of proportionality and procedural fairness in financial investigations.

United States:

In the United States, although the USA PATRIOT Act expanded the powers of financial crime  investigators, constitutional safeguards such as judicial oversight and proportionality remain entrenched. In United States v Bajakajian, the Supreme Court held that forfeiture must not be  excessive, thereby linking financial penalties to the Eighth Amendment’s protection against  disproportionate punishment³¹.

European Union:

The European Union’s Sixth Anti-Money Laundering Directive (6AMLD) advocates a  calibrated approach, mandating that asset-freezing and pre-trial measures be subject to court  authorisation and proportionate reasoning, thus balancing prosecutorial efficiency with the  right to a fair trial.³²

Thus, while India’s stringent regime aligns with FATF formal expectations, it remains an outlier  in terms of procedural leniency granted to investigative agencies.

• Critical Analysis and Implications
• Expansion of Executive Power

The judgment has been criticized for enabling an unaccountable expansion of executive  authority. By validating wide powers of arrest, attachment, and investigation with limited  external checks, the verdict risks weakening the due process guarantees under Articles 20 and  21.¹⁰

Impact on Federalism and Criminal Law

PMLA’s blanket override of CrPC procedures diminishes the role of states in criminal  investigation. Since law and order is a state subject, centralization under PMLA may lead to  future conflicts on legislative competence.

Procedural Fairness

The Court’s refusal to mandate ECIR disclosure was viewed as a setback to transparency. The  distinction between FIR and ECIR, while doctrinally innovative, was seen as inconsistent with the Court’s own jurisprudence in Maneka Gandhi v. Union of India,³³ which emphasized  fairness in all forms of state action.

Presumption of Innocence

While reverse burden may be acceptable under special laws, judicial precedents such as Indra  Das v. State of Assam,Error! Bookmark not defined. have stressed that procedural guarantees  must be strictly observed when the burden shifts to the accused.

Human Rights Concerns

Multiple human rights organizations, including Human Rights Watch³⁴ and Amnesty  International,³⁵ raised concerns post-judgment about increasing detentions without sufficient  judicial scrutiny. India’s rank on the World Justice Project’s Rule of Law Index dropped amidst  rising concerns over executive overreach.

Economic Impact

Some scholars argue that unchecked ED powers deter foreign investment due to fears of  arbitrary seizures and arrests. Legal uncertainty in financial regulation can hinder India’s  aspiration to become a global financial centre.

Conclusion

The Vijay Madanlal Choudhary judgment signifies a pivotal moment in India’s criminal  jurisprudence. It reinforced the state’s authority to prosecute economic crimes while  simultaneously inviting scrutiny over its approach to procedural safeguards.

While the ruling succeeded in aligning domestic law with international enforcement standards,  it did so at the risk of undermining fundamental constitutional guarantees. The judgment must  be seen as a call to Parliament to revisit PMLA and introduce amendments that reconcile  enforcement efficiency with civil liberties.

The partial course correction in Pankaj Bansal,²⁶ is a hopeful sign that the judiciary remains  responsive to evolving standards of fairness. Moving forward, India’s legal framework must ensure that the war on economic crime does not compromise the principles of justice, liberty,  and the rule of law.

Reference(S):

1. Vijay Madanlal Choudhary v Union of India (2022) 10 SCC 24. Available at: https://www.scconline.com/blog/post/2022/07/27/pmla-constitutional-supreme-court vijay-madanlal-choudhary/
2. Pankaj Bansal v Union of India, 2023 SCC OnLine SC 1241. Full text at: https://www.scconline.com/blog/post/2023/10/03/ed-obligated-to-give-written grounds-of-arrest-supreme-court/
3. Indra Das v State of Assam (2011) 3 SCC 380. Available at: https://indiankanoon.org/doc/781024/
4. Noor Aga v State of Punjab (2008) 16 SCC 417. Available at: https://indiankanoon.org/doc/1101545/
5. Ranjitsing Brahmajeetsing Sharma v State of Maharashtra (2005) 5 SCC 294. Full judgment: https://indiankanoon.org/doc/1528095/
6. Kartar Singh v State of Punjab (1994) 3 SCC 569. Text at: https://indiankanoon.org/doc/1711272/
7. D.K. Basu v State of West Bengal (1997) 1 SCC 416. Judgment at: https://indiankanoon.org/doc/501198/
8. Maneka Gandhi v Union of India (1978) 1 SCC 248. Full text: https://indiankanoon.org/doc/1766147/
9. United States v Bajakajian, 524 US 321 (1998). Available at: https://supreme.justia.com/cases/federal/us/524/321/
10. R v Director of the Serious Fraud Office [2018] UKSC 24. Official text: https://www.supremecourt.uk/cases/uksc-2018-0006.html
11. Serious Fraud Office v XYZ Ltd [2018] EWCA Crim 285. Case summary available at: https://www.lexology.com/library/detail.aspx?g=0ac9b51e-4867-4f3b-bf74- dcb12f1e92b7
12. Financial Action Task Force (FATF), The FATF Recommendations: International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, 2012 (updated 2023). Available at: https://www.fatf gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html
13. Standing Committee on Finance, 31st Report on the Prevention of Money Laundering (Amendment) Bill, 2011, Lok Sabha Secretariat, 2012. Summary context: http://164.100.47.193/lsscommittee/Finance/15_Finance_31.pdf
14. Human Rights Watch & Amnesty International, Statements on due process and arrests under PMLA, 2022. General link: https://www.hrw.org and https://www.amnesty.org/en/location/asia-and-the-pacific/south-asia/india/
15. World Justice Project, Rule of Law Index 2022. Available at: https://worldjusticeproject.org/rule-of-law-index/global/2022

¹ Vijay Madanlal Choudhary v Union of India (2022) 10 SCC 24.

² Directorate of Enforcement, Government of India, functioning under the Foreign Exchange Management Act  1999 and empowered under the Prevention of Money Laundering Act 2002.

³ Prevention of Money Laundering Act 2002, s 5.

⁴ Prevention of Money Laundering Act 2002, s 8(4).

⁵ Prevention of Money Laundering Act 2002, s 17.

⁶ Prevention of Money Laundering Act 2002, s 19.

⁷ Prevention of Money Laundering Act 2002, s 24.

⁸ Gautam Bhatia, ‘Due Process and the PMLA’ (2022) Indian Constitutional Law and Philosophy  https://indconlawphil.wordpress.com

⁹ Financial Action Task Force, ‘International Standards on Combating Money Laundering’ (FATF, 2022).

¹⁰ Constitution of India, arts 14, 19, 20, 21.

¹¹ Prevention of Money Laundering Act 2002, s 17(1); ECIR is not defined in the statute.

¹² LiveLaw, ‘Explained: Supreme Court’s PMLA Verdict’ (2022) https://www.livelaw.in

¹³ Indra Das v State of Assam (2011) 3 SCC 380.

¹⁴ UN Convention Against Corruption (2003), art 31.

¹⁵ Noor Aga v State of Punjab (2008) 16 SCC 417.

¹⁶ Narcotic Drugs and Psychotropic Substances Act 1985.

¹⁷ R v Director of the Serious Fraud Office [2005] 2 AC 176 (HL).

¹⁸ Gautam Bhatia, ‘Due Process and the PMLA’ (2022) Indian Constitutional Law and Philosophy  https://indconlawphil.wordpress.com; Mrinal Satish and Aparna Chandra, ‘ED’s Powers and the Constitution’  The India Forum (2022).

¹⁹ Standing Committee on Finance, Report on Demands for Grants (2018–19) of the Ministry of Finance (31st  Report, 16th Lok Sabha, Lok Sabha Secretariat, 2018) para 6.3.

²⁰ Kartar Singh v State of Punjab (1994) 3 SCC 569.

²¹ Terrorist and Disruptive Activities (Prevention) Act 1987.

²² D.K. Basu v State of West Bengal (1997) 1 SCC 416.

²³ Ranjitsing Brahmajeetsing Sharma v State of Maharashtra (2005) 5 SCC 294.

²⁴ Maharashtra Control of Organised Crime Act 1999 (MCOCA).

²⁵ Constitution of India, art 300A (guaranteeing that no person shall be deprived of their property save by  authority of law).

²⁶ Pankaj Bansal v Union of India (2023) 6 SCC 554.

²⁷ Constitution of India, art 22(1) (guaranteeing the right of an arrested person to be informed of the grounds of  arrest and to consult a legal practitioner of their choice).

²⁸ Financial Action Task Force, International Standards on Combating Money Laundering and the Financing of  Terrorism & Proliferation (FATF Recommendations, 2022).

²⁹ Proceeds of Crime Act 2002 (UK), ss 6, 40, 303.

³⁰ Serious Fraud Office v XYZ Ltd [2016] EWCA Crim 12.

³¹ United States v Bajakajian, 524 US 321 (1998); USA PATRIOT Act 2001, Pub L No 107-56, 115 Stat 272.

³² Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on Combating  Money Laundering by Criminal Law [2018] OJ L284/22 (6AMLD).

³³ Maneka Gandhi v. Union of India, (1978) 1 SCC 248

³⁴ Human Rights Watch, ‘India: Repressive Laws Enable Abuses’ (2023) https://www.hrw.org.

³⁵ Amnesty International, ‘India: Clampdown on Dissent’ (2023) https://www.amnesty.org.