Introduction: The Growing Centrality of PMLA
The Prevention of Money Laundering Act (PMLA), 2002, has evolved far beyond its original legislative design. What began as a statute intended to curb the laundering of illicit gains has now become a powerful enforcement tool with wide-ranging implications across sectors. With amendments tightening provisions relating to attachment, arrest, and bail, and with a surge in complex financial transactions across the economy, PMLA’s footprint has expanded significantly. Courts are consistently called upon to interpret its provisions, and several constitutional issues are now pending before larger benches.
Expansion of “Proceeds of Crime” and Its Practical Impact:
The definition of “proceeds of crime” (PoC) has undergone a steady expansion, particularly through judicial interpretation. Authorities now consider the following as PoC:
- direct and indirect gains arising out of the scheduled offence;
- layered or reinvested proceeds forming part of complex financial structures;
- “value-equivalent” assets when the original proceeds are no longer available;
- projected or anticipated gains in certain investigations.
This expansion often results in provisional attachment of operational assets, freezing of bank accounts, and seizure of properties belonging even to third parties who may not be connected to the predicate offence. The practical consequence is that businesses face severe financial disruption at the very beginning of the investigation, long before the prosecution establishes guilt.
Arrest Powers under Section 19: Questions of Transparency and Due Process
ED’s power to arrest is one of the most contested aspects of PMLA. Section 19 permits arrest based on the officer’s “reasons to believe,” but the degree of disclosure required remains unclear. Several issues continue to arise:
- grounds of arrest are not always provided in writing at the moment of detention;
- subjective satisfaction of the officer is difficult to challenge in court without access to the material relied upon;
- the absence of CrPC-style safeguards, such as a mandatory judicial warrant, allows wide discretion;
- pre-arrest protection is limited due to the non-applicability of certain procedural provisions.
Courts have begun emphasising the need for transparency, but the statute itself remains silent on mandatory disclosure standards, creating inconsistencies across jurisdictions.
The Stringent Twin Conditions for Bail under Section 45:
The reintroduction of the twin conditions for bail—requiring the court to believe that the accused is not guilty of money laundering and will not commit any offence while on bail—continues to attract constitutional scrutiny.
Key concerns include:
- the virtual impossibility of satisfying the “not guilty” requirement at the investigation stage;
- reversal of the presumption of innocence, which is central to criminal jurisprudence;
- prolonged incarceration due to slow progress of trials;
- disproportionate impact on individuals against whom the alleged laundering amount is small.
Multiple constitutional challenges are pending, and the court’s eventual ruling will have far-reaching implications on personal liberty under PMLA.
Attachment and Confiscation: Economic Consequences of Early Intervention
Section 5 empowers ED to provisionally attach property at a very early stage of investigation, even before a complaint is filed. This creates several real-world challenges:
- freezing essential operational accounts impacts salaries, vendor payments and ongoing projects;
- attachment of third-party assets, including those acquired bona fide, creates commercial uncertainty;
- businesses face immediate reputational damage;
- property remains under attachment for long durations due to delays before the Adjudicating Authority and Special Court.
Courts have repeatedly stressed the need for a rational nexus between the alleged proceeds of crime and the attached asset, but inconsistent interpretations continue to create uncertainty.
“Reasons to Believe”: The Disclosure Dilemma
A key difficulty under PMLA is the limited disclosure of the officer’s “reasons to believe” while ordering search, seizure, arrest, or attachment. The confidentiality clause—though intended to protect the investigation—often leads to challenges such as:
- inability of the accused to meaningfully contest the action;
- extensive reliance on sealed-cover submissions;
- limited judicial review due to lack of access to underlying materials;
- potential misuse of subjective satisfaction without sufficient checks.
Recent judicial observations favour more transparency, but legislative amendments may be necessary to strike a clear balance between confidentiality and fairness.
Proceedings Without a Predicate Offence: An Unresolved Question
One of the most significant jurisprudential questions is whether PMLA proceedings survive when the predicate offence (scheduled offence) does not. Courts have dealt with cases where:
- the accused was discharged in the scheduled offence;
- the FIR for the predicate offence was quashed;
- the parties settled the underlying dispute;
- there was no finding of unlawful gain.
Divergent judicial opinions have created uncertainty. A conclusive ruling on whether PMLA can stand independently of the predicate offence is awaited and will influence thousands of ongoing proceedings.
Constitutional Challenges and Areas Identified for Reform:
PMLA faces multiple challenges before the Supreme Court on grounds of violation of Articles 14, 20, and 21. Key concerns include:
- absence of judicial oversight at critical stages;
- lack of clarity in standards for attachment and arrest;
- disproportionate bail conditions;
- inversion of burden of proof;
- limited protections for third-party property owners.
Experts and several reports have suggested reforms such as mandatory supply of written grounds for arrest, stricter timelines for adjudication, refined standards for value-equivalent attachment, and the introduction of judicial warrants for intrusive actions.
Conclusion:
PMLA has become a cornerstone of India’s anti-money laundering framework, but its expanding scope demands a calibrated balance between enforcement efficiency and constitutional safeguards. As courts continue to examine key issues—including the twin bail conditions, definition of proceeds of crime, role of procedural fairness, and dependency on the predicate offence—the coming years are likely to shape a more defined and structured approach to anti-money laundering enforcement in India. The outcome of pending challenges will ultimately determine how the statute evolves and how far its powers can extend while respecting fundamental rights.
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