In the Supreme Court of Erehwon: The Prevention of Money Laundering Act

'Surely there is no greater danger to liberty and fundamental rights than to have penal consequences of the worst kind being visited at whim and fancy, or for extortionate reason, or for political advantage.'

Listen to this article:

Note: This article is satire.

Present: The Full Court

We are dealing with the constitutional validity of the Prevention of Money Laundering Act, 2002 (“the Act”). Given the wide sweep and drastic nature of its provisions, and its impact on a large number of possible offenders, including leaders of political parties, we considered it best that the full court of nine judges sits to hear this matter.

To have smaller benches of two or three would invariably pose the problem that it was assigned to judges keeping in view their personal philosophies and predilections. To avoid that, the preferable course is to have the nine senior most judges sit to hear this matter. This balances views and avoids one senior judge calling the shots, with little input from far junior judges. There is, after all, strength in numbers and some safety in seniority.  

The Act was passed in 2002. In its statement of purpose are frequent references to crimes related to narcotics and other drugs, terrorism, corruption and such other organised crimes. Proceeds of such crime are laundered, often trans-nationally, in large volumes, thus adversely impacting the financial systems of countries.

Hence, the Act, which focuses on recovering proceeds of specified crimes and punishing those who have dealt with such proceeds.

The serious objections to the Act are as follows:

1. A person can be summoned by the Enforcement Directorate (ED), which enforces the Act, without giving him a copy of the information report based on which the investigation is being undertaken. He therefore goes in blind without knowing why he is summoned and without the opportunity to prepare;

2. Proceedings before the ED are judicial proceedings and any statement made therein is admissible in evidence. The interrogation takes place behind closed doors and statements can be extracted involuntarily;

3. A person can be forced to make statements incriminating himself, which is against the constitutional protection against self-incrimination in Article 20 (3); 

4. A proceeding for the offence of money laundering can be launched without the predicate scheduled offence being established;

5. There is no judicial oversight over ED officers who are given full liberty to seize and arrest; 

6. Bail is virtually impossible because the court has to first find that the accused is not guilty of the offence; this inverts the time-honoured rule of presumption of innocence. Given our huge backlogs, it can take a very long time to secure bail even with the best case.

During the course of the hearing, we called for two factual reports. We did so because it appears to us that testing a statute must not be done simply with regard to the letter of the law, but heed must also be paid to how the law is actually worked on the ground.

The first report was to apprise us of the success rate of the convictions under the Act. This turned out to be a staggeringly low figure of less than 0.5%. Viewed from the prism of personal liberty, this means that 99 out of 100 persons should not have been arrested, and worse, should not have been denied bail.

Also read: With Low Conviction Rate, ED Is Nothing More Than a Caged Parrot That Can’t Get Anyone to Sing

Since the Union government will not agree to confessing the ineptitude of its ED officers and prosecutors, the only conclusion we can draw is that these cases were not fit for institution. If that be so, misuse of the Act for ulterior and collateral motives presents itself very strongly as a reason for initiating these proceedings. If we are to uphold these provisions, it must mean that we are giving judicial imprimatur to the continuing misuse of draconian provisions against citizens. 

We asked for another report as to the number of cases in which the ED has proceeded against politicians correlated to whether they were in opposition to the ruling party. Here again, the statistics are alarming. In case after case, state after state, we find that prominent opposition party leaders are proceeded against under this Act, jailed and bail sought to be denied. This cannot but have a deleterious effect on the democratic functioning of the body politic of the country. We may add that no political party appears to be free of this virus when it comes to rule.

We may make one cardinal observation. The initial rationale for the Act was to proceed against offenders and proceeds of crime related to narcotic drugs, terrorism, corruption, and the like which involve high volumes of money and are, by their very nature, dangerous to society worldwide.

If this had continued to be the only focus, matters could, perhaps, have been looked at differently because it would be just and necessary to subject the offenders and proceeds of such crimes to extraordinary vigilance, regulation and punishment. However, shockingly, we find that successive government formed by different political parties have widened the list of scheduled offences to cover a huge range of what we may consider as ‘normal’ criminal offences. This includes fraud, forgery, cheating, kidnapping, copyright and trademark infringements, environmental offences and even the immoral traffic of women.

This basically means that we have two sets of enactments to deal with this wide range of offences – one under the standard Indian Penal Code (1860), the Indian Evidence Act (1872) and the Code of Criminal Procedure (1973), which contain the traditional long-standing safeguards against unreasonable action for investigation and seizure, balancing considerations for grant of bail which recognise the primordial right to liberty but also the need to enable proper investigation, and helming the powers of the police with judicial control.

On the other hand is this PMLA, which obliterates these rights and leaves the accused persons at the mercy of an ED, which is sans procedure and oversight.

Also read: PMLA Ruling Signals That Focus on Due Process Is Urgent Priority

Now the important point is this – it is left to the executive to pick and choose to which persons it would apply the harsh provisions of the PMLA. The executive is unguided and unfettered and by this, we mean not just the ED officers but also, importantly, the political executive who are the masters of these officers. This we cannot countenance and let pass. For surely, there is no greater danger to liberty and fundamental rights than to have penal consequences of the worst kind being visited at whim and fancy, or for extortionate reason, or for political advantage. 

We propose to rely upon one of this court’s celebrated decisions for paramountcy in this case – the State of West Bengal versus Anwar Ali Sarkar (AIR 1952 SC 75) delivered in 1952 by a bench of 7 judges. All of them were great judges, but the acknowledged greatest in terms of judicial craftsmanship was Justice Vivian Bose. We reproduce a couple of paragraphs from his outstanding and seminal judgement in that case.

90. …I feel therefore that in each case judges must look straight into the heart of things and regard the facts of each case concretely much as a jury would do; and yet, not quite as a jury, for we are considering here a matter of law and not just one of fact: Do these “laws” which have been called in question offend a still greater law before which even they must bow?… 

91. What I am concerned to see is not whether there is absolute equality in any academical sense of the term but whether the collective conscience of a sovereign democratic republic can regard the impugned law, contrasted with the ordinary law of the land, as the sort of substantially equal treatment which men of resolute minds and unbiased views can regard as right and proper in a democracy of the kind we have proclaimed ourselves to be. Such views must take into consideration the practical necessities of government, the right to alter the laws and many other facts, but in the forefront must remain the freedom of the individual from unjust and unequal treatment, unequal in the broad sense in which a democracy would view it

92. … It is the differentiation which matters; the singling out of cases or groups of cases, or even of offences or classes of offences, of a kind fraught with the most serious consequences to the individuals concerned, for special, and what some would regard as peculiar, treatment

93. … When the froth and the foam of discussion is cleared away and learned dialectics placed on one side, we reach at last the human element which to my mind is the most important of all. We find men accused of heinous crimes called upon to answer for their lives and liberties. We find them picked out from their fellows, and however much the new procedure may give them a few crumbs of advantage, in the bulk they are deprived of substantial and valuable privileges of defence which others, similarly charged, are able to claim… The question with which I charge myself is, can fair-minded, reasonable unbiased and resolute men, who are not swayed by emotion or prejudice, regard this with equanimity and call it reasonable, just and fair, regard it as that equal treatment and protection in the defence of liberties which is expected of a sovereign democratic republic in the conditions which obtain in India today? I have but one answer to that. On that short and simple ground, I would decide this case and hold the Act bad.” (Emphasis supplied)

So he said and so do we. Justice Bose, and five other Judges with him, held the West Bengal Special Courts Act bad on these grounds, and we use these grounds to invalidate this Act. 

Anwar Ali Sarkar also referred to the celebrated judgement in Yick Vo versus Hopkins (118 U.S. 356) where the US Supreme Court struck down a statute for permission to operate laundries which in its design and effect was clearly targeted against persons of Chinese origin. In so doing the court observed:

Though the law itself be fair on its face and impartial in appearance, yet if it is applied and administered by public authority with an evil eye and an unequal hand so as to practically make unjust and illegal discrimination between persons in similar circumstances, material to their rights, the denial of equal justice is still within the prohibition of the Constitution.

That phrase – “with an evil eye and an unequal hand” – has rung in the ears of courts for decades. The statute may be framed in a general way, but it is for us to look into the heart of the matter and to see where it can be applied, and whether it is being applied with an evil eye and unequal hand. On so finding, it is our duty to shut the eye and still the hand.

Also read: Undue Process: Here’s What’s Wrong With the Supreme Court’s PMLA Judgment

We cannot lose sight of the fact that even the dreaded Maintenance of Internal Security Act, 1971 (MISA) provided for an advisory board of judges which had to approve the detention of persons. Strangely, or perhaps not so strangely, there is no similar requirement in this case. 

For the many reasons set out above, we have no hesitation in condemning this Act to join the list of enactments that were sponsored by the executive and promulgated by the legislature, but failed in the face of the Constitution, which it is our bounden duty to protect. To do otherwise would be to reverse three score and ten years of progress on the path of individual liberty and good governance. That is a stigma which this court cannot afford. The impugned Act is declared unconstitutional.

Erehwon (spell it backwards) is a novel by Samuel Butler set in a fictional country. It is a satire. 

The court, the judges and the judgment in this piece are fictional.

Sriram Panchu is a Senior Advocate, Madras high court.