Vijay Madanlal Choudhary v. Union of India: The Supreme Court’s Charter for PMLA — Section 3 Clarified, Twin Bail Conditions Revived, ECIR ≠ FIR, ED Not ‘Police’, and Reverse Burden Sustained

Introduction

This landmark judgment of the Supreme Court of India (2022 INSC 757; decided on 27 July 2022 by A.M. Khanwilkar, J.) considers an extensive constitutional and interpretive challenge to the Prevention of Money-Laundering Act, 2002 (PMLA). The petitions addressed foundational issues: the scope of money-laundering under Section 3; attachment and confiscation under Sections 5 and 8; searches, seizures, and arrest under Sections 17, 18, and 19; the reverse burden of proof in Section 24; the jurisdiction of Special Courts and the 2019 Explanation to Section 44; the infamous “twin bail conditions” in Section 45 revived post the 2018 amendment; the evidentiary and self-incrimination implications of Section 50 statements; whether an ECIR equates to an FIR; the status of the ED Manual; and the validity of the Schedule of predicate offences.

At stake was not merely the constitutionality of discrete provisions, but the architecture of India’s anti-money-laundering regime erected against the background of international obligations (Vienna Convention, Palermo Convention) and FATF recommendations. The Court broadly upheld the PMLA’s scheme, while leaving the separate challenge to the Money Bill route for PMLA amendments to a larger bench (Rojer Mathew reference).

Summary of the Judgment

Section 3 (money-laundering): The offence covers “any process or activity” connected with proceeds of crime. The 2019 Explanation is clarificatory. The Court reads “and projecting or claiming” as “or,” holding that each listed activity (concealment, possession, acquisition, use, projecting, claiming) independently constitutes laundering.
Link to predicate offence: Prosecution under PMLA is predicated on a scheduled offence, but the laundering offence is distinct. If the accused is discharged/acquitted or the scheduled case is quashed, PMLA prosecution tied to that property cannot survive.
Proceeds of crime: The definition (Section 2(1)(u)) and its 2019 Explanation are clarificatory; they reach property “derived or obtained” directly or indirectly from criminal activity; the reach includes equivalent value and property abroad.
Attachment & confiscation (Sections 5 and 8): Section 5 is valid; immediate (emergency) attachment without a prior FIR/charge-sheet is permissible with written “reason to believe.” Section 8(4) possession should be the exception (ordinarily defer possession until confiscation).
Search & seizure (Sections 17 and 18): Deletion of the proviso requiring FIR/Section 157 CrPC report is constitutionally valid. There are inbuilt safeguards (reasons in writing, dispatch to Adjudicating Authority, penalties for vexatious actions).
Arrest (Section 19): Valid. Arrest requires “reason to believe” recorded in writing, communication of grounds of arrest, and production before a court within 24 hours. Section 167 CrPC applies post-arrest.
Reverse burden (Section 24): Valid. After foundational facts (existence of proceeds of crime; involvement) are shown, a presumption operates. “Shall presume” applies post-charge; “may presume” applies to others. The provision is an evidentiary rule consistent with serious economic crime policy.
Special Courts & trials (Section 44): Upheld. The Explanation (2019) clarifies PMLA trials are independent of predicate trials, though both may be tried by the same Special Court. Committal/transfer under Section 44(1)(c) is directory; judicial discretion applies.
Twin bail conditions (Section 45): Revived and upheld post-2018 amendment; they apply to anticipatory bail as well. Section 436A CrPC (statutory bail after half of maximum sentence spent in pre-trial detention) applies.
Section 50 statements: ED officials are not “police officers”; statements under Section 50 are not hit by Article 20(3) or Section 25 Evidence Act. Tofan Singh was distinguished on multiple axes.
ECIR: An internal ED document, not an FIR; need not be furnished in every case. Communicating “grounds of arrest” suffices. The Special Court can peruse case materials when considering remand/detention.
Schedule: Inclusion/exclusion of predicate offences is within legislative policy; challenges on overbreadth fail.
ED Manual: A non-statutory internal manual; the Court suggests publishing broad guidance on ED’s website though not compelled by law.
Appellate Tribunal: The Court deprecates vacancies and urges the Executive to rectify.
Money Bill route: Left open for decision by a larger bench in Rojer Mathew.

Analysis

Precedents Cited and Their Influence

Nikesh Tarachand Shah v. Union of India (2018): Initially struck down the then-form twin bail conditions; the Court held the 2018 amendment cured the defect by linking Section 45 to offences under PMLA itself. The doctrine of curing the basis of a judgment (Prithvi Cotton Mills; Jagannath) was applied.
Kartar Singh v. State Of Punjab (1994) (TADA): Upheld stringent bail conditions in special statutes. The Court relied on Kartar Singh to endorse Section 45’s strict bail regime as proportional to the menace of money-laundering.
Tofan Singh v. State Of Tamil Nadu (2020) (NDPS): Held NDPS officers recording confessions are “police officers.” Distinguished here: PMLA’s scheme is different; ED alone investigates PMLA; Section 50 proceedings are inquiries about property; ED cannot file charge-sheet under CrPC and is therefore not “police” for Section 25 Evidence Act/Article 20(3).
Romesh Chandra Mehta; Badaku Joti Svant; Barkat Ram; Raja Ram Jaiswal: The “police officer” test—focusing on power to file charge-sheet under Section 173 CrPC and policing functions—guided the conclusion that ED officers are not “police officers.”
Pooran Mal; Seth Brothers; Dr. Partap Singh: Upheld analogous search-and-seizure powers and recognized safeguards such as recording reasons and forwarding to an authority, influencing validation of PMLA’s Sections 17 and 18.
Hiten P. Dalal; Noor Aga; Seema Silk & Sarees: Support for reverse burden/evidentiary presumptions in economic crimes—applied to sustain Section 24 PMLA.
Y.S. Jagan Mohan Reddy; Nimmagadda Prasad; Rohit Tandon: Economic offences need a different approach to bail; harmful to financial health. This ethos permeates the bail analysis under Section 45.
Sushila Aggarwal: Anticipatory bail principles; the Court extends Section 45’s rigours to anticipatory bail as well.
Lalita Kumari: A manual cannot override statute. Used to explain why the ED Manual, like the CBI Manual, is not law.
Supreme Court Legal Aid Committee (NDPS); Section 436A CrPC: Recognized statutory bail post half-term detention as a facet of Article 21. Extended to PMLA.

Core Legal Reasoning

1) Section 3: Scope of “money-laundering” and the ‘and/or’ debate

The Court adopts a purposive, FATF-aligned interpretation: laundering is not confined to the final projection as untainted; it includes any process or activity—concealment, possession, acquisition, use, projecting, or claiming. The 2019 Explanation is “clarificatory” and reinforces that each listed verb can independently make out the offence. Reading “and” as “or” avoids easy evasion by dividing tasks among confederates (one holds; another projects).

Two limiting guardrails remain: (i) a scheduled offence must exist (the PoC must flow from criminal activity relating to a scheduled offence); (ii) if the scheduled case collapses (discharge/acquittal/quashing), the linked PMLA prosecution tied to that property cannot subsist.

2) Proceeds of Crime (Section 2(1)(u)) and its Explanation

“Proceeds of crime” includes property (or its value, including equivalents and property abroad) derived or obtained directly/indirectly from criminal activity relating to a scheduled offence. The 2019 Explanation is a clarification: it does not enlarge the definition beyond its original purpose of tracking tainted value.

3) Attachment and Confiscation (Sections 5 and 8)

Section 5: Valid. Two-stage “reasons to believe” (PoC exists and is likely to be concealed/transferred) authorizes provisional attachment for 180 days. The second proviso allows emergency attachment without a prior FIR/charge-sheet; safeguards include contemporaneous recordation and forwarding to the Adjudicating Authority.
Section 8(3) and (4): Confirmation continues for up to 365 days or pendency of PMLA proceedings; possession under Section 8(4) should be the exception, not the rule—generally defer physical possession until confiscation (to avoid civil disruption if acquittal ensues).

4) Searches and Seizures (Sections 17 and 18)

The Court upholds deletion of provisos that demanded an FIR/Section 157 CrPC report before PMLA searches of premises/persons. Reasons in writing, sealed forwarding to the Adjudicating Authority, presence of witnesses, and penalties for vexatious actions are deemed robust safeguards. CrPC’s Chapter XII is not bodily incorporated; PMLA’s special code governs.

5) Arrest (Section 19)

Arrest depends on recorded “reason to believe” that a person is guilty of a PMLA offence, communication of grounds of arrest, and production within 24 hours; Section 167 CrPC governs remand. The provision is constitutional and proportionate.

6) Reverse Burden (Section 24)

A carefully structured evidentiary presumption:

Foundational facts required: existence of PoC; nexus to a scheduled offence; and involvement in a process/activity connected with PoC.
After charge (24(a)): the Court “shall presume” PoC is involved in laundering unless rebutted by the accused.
For others (24(b)): the Authority/Court “may presume” PoC is involved; this is discretionary.

The Court situates Section 24 within a well-established tradition of reverse onuses for socio-economic crimes and emphasizes it is not a conviction presumption; it is rebuttable and works alongside the Evidence Act.

7) Special Courts and Trials (Section 44)

Section 44’s architecture is upheld. The Explanation clarifies that PMLA jurisdiction and trials are independent of outcomes in the predicate offence. While PMLA and predicate cases may be before the same Special Court, their trials are not “joint trials.” Transfer/committal powers are directory; courts should exercise case-by-case discretion, particularly where appeal routes may be affected.

8) Bail (Section 45) and Section 436A CrPC

Twin conditions revived: Post-2018, Section 45 validly links bail conditions to offences “under this Act” and cures the defect flagged in Nikesh Tarachand Shah. The “cure-the-basis” doctrine sustains revival.
Applicability to anticipatory bail: The rigours of Section 45 apply equally to Section 438 CrPC applications, avoiding irrational dichotomies.
Section 436A CrPC: Statutory bail after half of maximum sentence spent in pre-trial detention applies to PMLA, reflecting Article 21’s speedy trial guarantee.

9) Section 50 Statements, Article 20(3), and ED’s Status

ED officers are not “police officers”: They cannot file charge-sheets under Section 173 CrPC and perform sui generis inquiry functions focused on property; multiple “police officer” tests in earlier cases support this view.
Section 50 proceedings are “judicial” for limited purposes (Sections 193 and 228 IPC) and are not hit by Article 20(3) or Section 25 Evidence Act. Tofan Singh (NDPS) is distinguished due to PMLA’s distinct structure.

10) ECIR, ED Manual, and Schedule

ECIR: Not equivalent to an FIR; is an internal trigger. Disclosure of “grounds of arrest” suffices for Article 22(1); Special Courts can examine records for remand.
ED Manual: An internal administrative document; not statutory; the Court encourages ED to publish general guidance for transparency.
Schedule: Inclusion/exclusion of predicate offences is legislative policy; courts cannot second-guess the contours of Parliament’s choices for AML coverage.

Impact and Implications

Strengthened enforcement: The decision cements ED’s investigative architecture—searches and arrest pre-FIR; admissibility of Section 50 statements; independent laundering offence; non-delivery of ECIR.
Bail hardens: The revived twin conditions raise the threshold for release; anticipatory bail too is circumscribed. Section 436A offers a statutory safety valve to prevent interminable incarceration.
Prosecution dependencies clarified: PMLA prosecutions require a scheduled offence; if the scheduled case fails definitively, the PMLA case tied to that property fails.
Property-centric action affirmed: Attachment and eventual confiscation are central; taking possession before confiscation should be exceptional—guidance that can mitigate civil disruption.
Compliance signal: Reporting entities and market participants face an unambiguous message: FATF-compliant, property-focused, preventive regulation will be applied rigorously.
Institutional nudge: The Court’s admonition on Appellate Tribunal vacancies underscores due process concerns and the need to ensure appellate oversight is actually functional.
Open constitutional question: The “Money Bill route” challenge remains pending, leaving a structural question unresolved even as the operational core of PMLA remains intact.

Complex Concepts Simplified

Money-laundering under Section 3

Think of laundering as a chain: placement, layering, integration. The Court says any link in this chain—concealing, holding, acquiring, using, projecting, or claiming tainted value—counts as laundering. You need not prove “projection” to have laundering; each act is enough.

Continuing offence

If someone keeps holding or using proceeds of crime after PMLA commences or after an offence is added to the Schedule, the laundering activity can be prosecuted as a continuing wrong; but if the underlying scheduled offence collapses finally, the PMLA case tied to that property collapses with it.

Reverse burden (Section 24)

Once the prosecution shows PoC exists and the accused is connected to a laundering process/activity, the law presumes laundering. This presumption is rebuttable: the accused can explain (e.g., show legitimate source, lack of connection).

ECIR vs FIR

FIR (CrPC): Mandatory registration; copy supplied to accused; anchors police investigation.
ECIR (PMLA): An internal ED record; non-statutory; disclosure not mandatory. ED must disclose “grounds of arrest,” and courts review records at the remand stage.

Reasons to believe

Searches, seizures, attachments, and arrests must be backed by written “reason to believe” founded on material; copies go in sealed covers to the Adjudicating Authority to ensure accountability. Vexatious actions are penalized.

Conclusion

Vijay Madanlal Choudhary is the Supreme Court’s definitive endorsement of India’s FATF-era anti-money-laundering regime. It clarifies that Section 3 is broad and property-centric; revives and entrenches stringent bail thresholds; validates proactive search, arrest, and attachment; sustains reverse evidentiary burdens; forecloses Article 20(3) and Section 25 Evidence Act challenges to Section 50 statements by emphasizing ED’s non-police character; and deems ECIR an internal mechanism rather than a public FIR.

At the same time, the Court builds guardrails: possession of attached assets before confiscation is the exception; Section 436A CrPC applies as a constitutional safety valve; and PMLA prosecution must rest on an extant scheduled offence and PoC linkage. The Court admonishes the executive to ensure a functioning PMLA Appellate Tribunal and leaves the Money Bill controversy to a larger bench.

The overall message is unmistakable: money-laundering is a serious, transnationally condemned economic crime, and the Indian legal system will deploy a robust, preventive, property-focused, and prosecution-capable framework to combat it. This judgment sets the baseline for future adjudication, compliance, and enforcement under the PMLA.