REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

WRIT PETITION NO.634 OF 2007

Pareena Swarup       .... Petitioner (s)

Versus

Union of India        .... Respondent(s)

J U D G M E N T  

P. Sathasivam, J.

1) Ms. Pareena Swarup, member of the Bar, has filed this

writ petition under Art. 32 of the Constitution of India by way

of Public Interest Litigation seeking to declare various sections

of  the  Prevention  of  Money  Laundering  Act,  2002  such  as

Section  6  which  deals  with  adjudicating  authorities,

composition,  powers  etc.,  Section  25  which  deals  with  the

establishment of Appellate Tribunal,  Section 27 which deals

with composition  etc.  of  the  Appellate  Tribunal,  Section  28

which  deals  with  qualifications  for  appointment  of

Chairperson and Members of the Appellate Tribunal, Section

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32  which  deals  with  resignation  and  removal,  Section  40

which deals with members etc. as ultra vires of Arts. 14, 19 (1)

(g),  21,  50,  323B  of  the  Constitution  of  India.   It  is  also

pleaded that these provisions are in breach of scheme of the

Constitutional provisions and power of judiciary.

2) Brief facts in a nutshell are:

The  Prevention of  Money  Laundering  Act,  2002  (hereinafter

referred  to  as  “the  Act”)  was  introduced  for  providing

punishment for offence of Money Laundering.  The Act also

provides measures of  prevention of  money laundering.   The

object sought to be achieved is by provisional attachment of

the  proceeds  of  crime,  which  are  likely  to  be  concealed,

transferred or dealt with in any manner which may result in

frustrating  any  proceedings  relating  to  confiscation  of  such

proceeds  under  the  Act.   The  Act  also  casts  obligations  on

banking companies, financial institutions and intermediaries

to  maintain  record  of  the  transactions  and  to  furnish

information of such transactions within the prescribed time.

In exercise of powers conferred by clause (s) of sub-section (2)

of Section 73 read with Section 30 of the Prevention of Money-

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Laundering Act, 2002 (15 of 2003), the Central Government

framed  rules  regulating  the  appointment  and  conditions  of

service of persons appointed as Chairperson and Members of

the  Appellate  Tribunal.   These  rules  are  the  Prevention  of

Money-Laundering (Appointment and Conditions of Service of

Chairperson and Members of Appellate Tribunal) Rules, 2007.

The  Central  Government  has  also  framed  rules  called  the

Prevention of Money Laundering (Appointment and Conditions

of  Service  of  Chairperson  and  Members  of  Adjudicating

Authorities) Rules, 2007.   

3) It  is  highlighted  that  the  provisions  of  the  Act  are  so

provided  that  there  may  not  be  independent  judiciary  to

decide  the  cases  under  the  Act  but  the  Members  and  the

Chairperson  are  to  be  selected  by  the  Selection  Committee

headed by the Revenue Secretary.  It  is further pointed out

that the Constitutional guarantee of a free and independent

judiciary,  and  the  constitutional  scheme  of  separation  of

powers  can  be  easily  and  seriously  undermined,  if  the

legislatures  were  to  divest  the  regular  Courts  of  their

jurisdiction  in  all  matters,  entrust  the  same  to  the  newly

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created Tribunals.  According to the petitioner, the statutory

provisions of the Act and the Rules, more particularly, relating

to  constitution  of  Adjudicating  Authority  and  Appellate

Tribunal are violative of basic constitutional guarantee of free

and  independent  judiciary,  therefore,  beyond  the  legislative

competence of the Parliament.  The freedom from control and

potential  domination  of  the  executive  are  necessary  pre-

conditions  for  the  independence.   With  these  and  various

other  grounds,  the  petitioner  has  filed  this  public  interest

litigation seeking to issue a writ of certiorari for quashing the

abovesaid  provisions  which  are  inconsistent  with  the

separation  of  power  and  interference  with  the  judicial

functioning of the Tribunal as ultra vires of the Constitution of

India.

4) The respondent-Union of India has filed counter affidavit

repudiating  the  claim  of  the  petitioner.   The  Department

highlighted  that  the  impugned  Act  has  not  ousted  the

jurisdiction  of  any  courts  and  sufficient  safeguards  are

provided  in  the  appointment  of  officers  of  the  Adjudicating

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Authorities,  Members  and  Chairperson  of  the  Appellate

Tribunal.  

5) We have carefully verified the provisions of the Act and

the Rules, particularly, relating to constitution and selection of

Adjudicating  Authorities,  Members  and  Chairperson  of  the

Appellate  Tribunal.   Considering  the  stand  taken  by  the

petitioner with reference to those provisions, we requested Mr.

K.K. Venugopal,  learned senior counsel, to assist the Court.

Pursuant  to  the  suggestion  made  by  the  Court,  Mr.  K.K.

Venugopal  and Mr.  Gopal  Subramaniam, learned Additional

Solicitor  General,  discussed  the  above  issues  and  by

consensus submitted certain proposals.

6) The petitioner has highlighted the following defects in the

Adjudicating Authority Rules, 2007 and the Appellate Tribunal

Rules, 2007:-  

1. Rule  3(3)  of  Adjudicating  Authority  Rules,  2007  does  not explicitly specify the qualifications of member from the field of finance or accountancy.

2. Rule 4 of Appellate Tribunal Rules, 2007 which provided for Method of Appointment of Chairperson do not give adequate control to Judiciary.

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3. Rule 6(1) of Appellate Tribunal Rules, 2007 which defines the Selection  Committee  for  recommending  appointment  of Members of the Tribunal, would undermine the constitutional scheme  of  separation  of  powers  between  judiciary  and executives.

4. Rule  32(2)  of  PMLA  which  provides  for  removal  of Chairperson/Members  of  Tribunal  under  PMLA  does  not provide  adequate  safety  to  the  tenure  of  the Chairperson/Members of the Tribunal.

5. Rule 6(2) of Appellate Tribunal Rules is vague to the extent that  it  provides  for  recommending  names  after  “inviting applications  thereof  by  advertisement  or  on  the recommendations of the appropriate authorities.”

6. Section 28(1) of PMLA, which allows a person who “is qualified to be a judge of the High Court” to be the Chairperson of the Tribunal,  should  be  either  deleted  or  the  Rules  may  be amended  to  provide  that  the  Chief  Justice  of  India  shall nominate  a  person  for  appointment  as  Chairperson  of Appellate Tribunal under PMLA “who is or has been a Judge of the Supreme Court or a High Court” failing which a person who “is qualified to be a judge of the High Court.”

7. The  qualifications  for  Legal  Member  of  the  Adjudicating Authority  should  exclude  “those  who  are  qualified  to  be  a District  Judge”  and only  serving  or  retired  District  Judges should be appointed.   The Chairperson of  the Adjudicating Authority should be the Legal member.

7) As regards the above  defects in the rules,  as observed

earlier,  on  the  request  of  this  Court,  Mr.  K.K.  Venugopal,

learned senior counsel, Mr. Gopal Subramaniam, learned ASG

as  well  as  Ms.  Pareena  Swarup  who  has  filed  this  PIL

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suggested certain amendments in the line of the constitutional

provisions as interpreted by this Court in various decisions.  

8) It is necessary that the Court may draw a line which the

executive  may  not  cross  in  their  misguided  desire  to  take

over bit by bit and judicial functions and powers of the State

exercised by the duly constituted Courts.  While creating new

avenue of judicial forums, it is the duty of the Government to

see that they are not in breach of basic constitutional scheme

of  separation  of  powers  and  independence  of  the  judicial

function.  We agree with the apprehension of the petitioner

that the provisions of Prevention of the Money Laundering Act

are so provided that there may not be independent judiciary to

decide  the  cases  under  the  Act  but  the  Members  and  the

Chairperson to be selected by the Selection Committee headed

by Revenue Secretary.  It is to be noted that this Court in the

case  of  L.  Chandra Kumar vs.  Union of  India and Ors.,

(1997) 3 SCC 261 has laid down that power of judicial review

over legislative action vested in the High Courts under Article

226  as  well  as  in  this  Court  under  Article  32  of  the

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Constitution  is  an  integral  and  essential  feature  of  the

Constitution  constituting  part  of  the  its  structure.   The

Constitution guarantees  free  and independent  judiciary  and

the  constitutional  scheme  of  separation  of  powers  can  be

easily  and seriously  undermined,  if  the  legislatures  were  to

divest  the regular courts of their  jurisdiction in all  matters,

entrust the same to the newly created Tribunals which are not

entitled to protection similar to the constitutional protection

afforded  to  the  regular  Courts.   The  independence  and

impartiality which are to be secured not only for the Court but

also  for  Tribunals  and  their  members,  though  they  do  not

belong  to  the  ‘Judicial  Service’  are  entrusted  with  judicial

powers.   The  safeguards  which  ensure  independence  and

impartiality  are  not  for  promoting  personal  prestige  of  the

functionary but for preserving and protecting the rights of the

citizens and other persons who are subject to the jurisdiction

of the Tribunal  and for ensuring that such Tribunal will  be

able to command the confidence of the public.  Freedom from

control  and  potential  domination  of  the  executive  are

necessary  pre-conditions  for  the  independence  and

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impartiality of judges.  To make it clear that a judiciary free

from control by the Executive and Legislature is essential  if

there is a right to have claims decided by Judges who are free

from potential domination by other branches of Government.

With this background, let us consider the defects pointed out

by the petitioner and amended/proposed provisions of the Act

and the Rules.        

9) Mr.  Gopal  Subramaniam has informed this  Court  that

the suggested actions have been completed by amending the

Rules.   Even  other  wise,  according  to  him,  the  proposed

suggestions  formulated  by  Mr.  K.K.  Venugopal  would  be

incorporated  on  disposal  of  the  above  writ  petition.   For

convenience, let us refer the doubts raised by the petitioner

and amended/proposed provisions as well as the remarks of

the department in complying with the same.  

S.No

.

Issues Amended/Proposed provision Remarks

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1. Rule  3(3)  of Adjudicating Authority Rules,  2007 does  not explicitly  specify  the qualifications  of member from the field of  finance  or accountancy.

Rule  3(3)  of  Adjudicating Authority Rules, 2007 have been amended to specify the ‘academic qualification’  for  the  Member from  the  field  of  finance  and accounting  by  inserting  a  sub- clause (b) as follows: “(b)  From among  such  persons, the  Selection  Committee  shall have due regard to the academic qualifications  of  chartered accountancy  or  a  degree  in finance,  economics  or accountancy  or  having  special experience in finance or accounts by virtue of having worked for at least two years in the finance or revenue department of either the Central  Government  or  a  State Government or being incharge of the finance or accounting wing of a corporation for a like period.”

Action completed. Amended Rule  as  per annexure A

2. Rule  4  of  Appellate Tribunal  Rules,  2007 which  provided  for Method  of Appointment  of Chairperson  do  not give  adequate  control to Judiciary.

Rule  4  of  Appellate  Tribunal Rules,  2007 has  been  amended to  unambiguously  provide  that the appointment  of  Chairperson shall  be  made  on  the recommendation  of  the  Chief Justice of India.  

Action completed. Amended Rule  as  per annexure B

3. Rule 6(1)  of  Appellate Tribunal  Rules,  2007 which  defines  the Selection  Committee for  recommending appointment  of Members  of  the Tribunal,  would undermine  the constitutional  scheme of  separation  of powers  between judiciary  and executives.

Rule  6(1)  of  Appellate  Tribunal Rules,  2007 has  been  amended to  provide  that  the  Chairperson of  Appellate  Tribunal  is appointed  on  the recommendation of  the CJI  and the composition of the Selection Committee to select Members of the Tribunal has been amended to  provide  for  a  Judge  of  the Supreme  Court,  nominated  by the Chief Justice of India, to be the Chairperson of the Selection Committee.  

Action completed. Amended Rule  as  per annexure C

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4. Rule  32(2)  of  PMLA which  provides  for removal  of Chairperson/Members of  Tribunal  under PMLA  does  not provide  adequate safety to the tenure of the  Chairperson/ members  of  the Tribunal.

Appropriate  amendment  to  the Statute  is  being  proposed  to unambiguously  provide  that Chairperson/Members appointed in  consultation  with  Chief Justice  of  India,  shall  not  be removed  without  mandatory consultation  with  Chief  Justice of India.  

Draft  Bill  is under preparation.

5. Rule 6(2)  of  Appellate Tribunal  Rules  is vague  to  the  extent that  it  provides  for recommending  names after  “inviting applications  thereof by  advertisement  or on  the recommendations  of the  appropriate authorities.”

Rule  6(2)  of  the  Appellate Tribunal  Rules,  2007  may  be amended to delete the words “or on  recommendation  of  the appropriate  authorities”,  a proposal endorsed by ASG, Shri Gopal Subramaniam.  

May  be deleted.  

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6. Section 28(1) of PMLA, which allows a person who “is qualified to be a  judge  of  the  High Court”  to  be  the Chairperson  of  the Tribunal,  should  be either  deleted  or  the Rules  may  be amended  to  provide that the Chief Justice of  India  shall nominate a person for appointment  as Chairperson  or Appellate  Tribunal under  PMLA  “who  is or has been a Judge of the Supreme Court or a  High  Court”  failing which a  person  who “is  qualified  to  be  a judge  of  the  High Court.”

There  are  several  Acts  under which  Judges  and  those ‘qualified  to  be  a  judge’  are equally  eligible  for selection like for  Chairman  under  NDPS  Act and  SAFEMA;  Judicial  member under  Administrative  Tribunal Act;  Chairperson  under  FEMA etc.   The  eligibility  criteria,  for appointment as a judge of a High Court,  provided  in  the Constitution  of  India  under Article  217(2)(b),  is  that  the person should have been “for at least 10 years as an advocate of a  High  Court…”   Furthermore, since  appointment  of Chairperson  of  the  Tribunal under PMLA is to be made on the recommendation  of  CJI,  it  is expected  that  an  independent person  would  be  appointed  to head the Appellate Tribunal.

There  is  no requirement to  amend either  the Statute  or the Rules.

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7. The  qualifications  for Legal  Member  of  the Adjudicating Authority should exclude “those who are qualified to be a District  Judge”  and only serving or retired District Judges should be  appointed.   The Chairperson  of  the Adjudicating Authority should  be  the  Legal member.

1.  Persons  ‘qualified  to  be  a district Judge’ are treated at par with  District  Judges  for  the purposes  of  qualification  for appointment as member in ATFE under  FEMA;  as  President  of District Forum under Consumer Protection  Act,  1986  etc.   The eligibility  criterion,  for appointment as a District Judge, provided  in  the  Constitution  of India under Article 233(2), is that the person should have been an advocate “for not less than seven years”.

2. PMLA is a specialized and new Act and District Judges may not be  available  with  experience  in related issues whereas Advocates or  officers  of  Indian  Legal Service,  who  are  eligible  to  be District  Judges,  may often have greater  knowledge  of  its provisions and working.  

3.  The Adjudicating Authority is a body of  experts from different fields to adjudicate on the issue of  confirmation  of  provisional attachment  of  property  involved in  money  laundering.   The functions  of  Adjudicating Authority  are  civil  in  nature  to the extent that it does not decide on the criminality of the offence nor  does  it  have  power  to  levy penalties or impose punishment.  

4.  Adjudication  is  a  function which is performed by Executives under  many  statutes.   The Competent  Authority  under NDPS/SAFEMA  have  been conducting  Adjudication proceedings routinely since 1978

There  is  no requirement to  amend either  the Statute  or the Rules.

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10) Inasmuch  as  the  amended/proposed  provisions,  as

mentioned  in  para  9,  are  in  tune  with  the  scheme  of  the

Constitution as well as the principles laid down by this Court,

we approve the same and direct the respondent-Union of India

to implement the above provisions, if not so far amended as

suggested, as expeditiously as possible but not later than six

months from the date of receipt of copy of this judgment.  The

writ petition is disposed of accordingly.  No costs.  This Court

records its appreciation for the valuable assistance rendered

by Mr. K.K. Venugopal, learned senior counsel and Mr. Gopal

Subramaniam, learned Addl. Solicitor General.     

…….…….……………………CJI.                                                   (K.G. BALAKRISHNAN)

...…………………………………J.         (LOKESHWAR SINGH PANTA)

...…………………………………J (P. SATHASIVAM)                                  

NEW DELHI; September 30, 2008.     

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