Holding

Independence and impartiality must be secured for tribunals exercising judicial powers, and the amended/proposed provisions of the Prevention of Money Laundering Act and its Rules are approved.

Summary

Pareena Swarup filed a public interest writ under Article 32 challenging sections of the Prevention of Money Laundering Act, 2002 and its 2007 appointment rules, alleging that the selection of members and chairpersons of the Adjudicating Authorities and Appellate Tribunal by a committee headed by the Revenue Secretary violated the constitutional doctrine of separation of powers and the guarantee of an independent judiciary. The Court examined whether tribunals exercising judicial functions must be insulated from executive control and whether the impugned provisions were ultra vires. Relying on the basic structure doctrine and the precedent in L. Chandra Kumar v. Union of India, the Court held that independence and impartiality are essential for tribunals as well as courts. The Union of India proposed amendments to the Act and Rules to incorporate safeguards, which the Court approved. Consequently, the petition was disposed of, directing the Union to implement the amended provisions within six months, with no costs awarded.

Issues considered

Do the provisions of the Prevention of Money Laundering Act, 2002 and its appointment rules infringe the constitutional scheme of separation of powers and the independence of the judiciary?
Whether tribunals exercising judicial powers require constitutional safeguards comparable to courts?
Are the challenged provisions ultra vires the Constitution?
Should the Act and Rules be amended to ensure independence of the adjudicating authorities and appellate tribunal?

Legislation cited

Prevention of Money Laundering Act, 2002s. 25, s. 27, s. 28, s. 28(1), s. 32, s. 32(2), s. 40, s. 6

Subjects

Constitutional lawSeparation of powersJudicial independenceTribunalsMoney launderingAppointment of judgesPublic interest litigationJudicial review

Judgment

) [2008] 13 S.C.R. 1217

PAREENA SWARUP A
V.
UNION OF INDIA
(Writ Petition No. 634 of 2007)

SEPTEMBER 30, 2008
8
[K.G. BALAKRISHNAN, CJI, LOKESHWAR SINGH
PANTA AND P. SATHASIVAM, JJ]

Constitution of India, 1950:
Article 32 - Provisions of Prevention of Money-launder- c
ing Act, 2002 and the Rules framed thereunder regarding con-
stitution of Adjudicating Authorities and Appellate Tribunal -
Challenged as violative of constitutional scheme of separa-
tion of powers and constitutional guarantee of independent
;udiciary - Union of India filing amended/proposed provisions D
incorporating the required safeguards - HELD: Independence
and impartiality are to be secured not only for courts but also
for tribunals and their members entrusted with judicial powers
- Amended/proposed provisions of the Act and the Rules
approved - Judicial Review - Administration of justice - Tri- E
bunals entrusted with judicial powers- Independence of- Pre-
vention of Money-laundering Act, 2002 - ss. 28 and 32 - Pre-
vention of Money-laundering (Appointment and Conditions
of Service of Chairperson and Members of Adjudicating Au-
thorities) Rules, 2007 - r. 3 - Prevention of Money-launder- F
ing (Appointment and Conditions of Service of Chairperson
and Members of Appellate Tribunal) Rules, 2007 - rr. 4 and 6
- Public Interest Litigation.
Basic structure theory - Doctrine of separation of pow-
ers, and independence of judiciary - Applicability of, to tribu- G
nals entrusted with judicial powers - Explained.
The petitioner filed the instant writ petition under Ar-
tic le 32 of the Constitution of India, by way of public inter-
1217 H
1218 SUPREME COURT REPORTS [2008] 13 S.C.R.

A est litigation, challenging the provisions of Prevention of
Money-laundering Act, 2002, Prevention of Money-laun-
dering (Appointment and Conditions of Service of Chair-
person and Members of Adjudicating Authorities) Rules,
2007 and Prevention of Money-laundering (Appointment
B and Conditions of Service of Chairperson and Members
of Appellate Tribunal) Rules, 2007 in so far as they related
to constitution of the Adjudicating Authorities and the
Appellate Tribunal. It was contended that the Adjudicat-
ing Authorities and the Appellate Tribunal under the Act
c were to perform judicial functions, but their Members and
Chairperson were to be selected by a Selection Commit-
tee headed by the Revenue Secretary and, thus, the rel-
evant provisions of the Act and the Rules were violative
of the Constitutional scheme of separation of powers and
D constitutional guarantee of a free and independent judi-
t
ciary.
During the course of hearing, amendment to the Act
and the Rules were suggested and, accordingly, the Union
of India filed amended/proposed provisions of the Act and
E the Rules, which were approved by the Court.
Disposing of the writ petition, the Court
HELD: 1.1 The Independence in judicial function and
impartiality are to be secured not only for courts but also
F for tribunals and their members, entrusted with judicial ,
powers, though they do not belong to the 'Judicial Ser-
vice'. [para 8) [1224,C]
1.2 While creating new avenue of judicial forums, it
is the duty of the Government to see that they are not in
G breach of basic constitutional scheme of separation of
powers and independence of the judicial function. There
is substance in the apprehension of the petitioner that
~
the provisions of Prevention of the Money-laundering Act,
2002 are so provided that the Members and the Chairper-
H son of the Adjudicating Authorities and Appellate Tribu-
PAREENA SWARUP v. UNION OF INDIA 1219

nal would be selected by the Selection Committee headed A
by Revenue Secretary and, that there may not be inde-
pendent adjudicatory machinery to decide the cases un-
der the Act. [para 8] [1223,F-H]
1.3 Power of judicial review over legislative action
vested in the High Courts under Article 226 as well as in 8
this Court under Article 32 of the Constitution is an inte-
gral and essential feature of the Constitution constitut-
ing part of its structure. The Constitution guarantees free
and independent judiciary and the constitutional scheme
of separation of powers can be easily and seriously un- C
dermined, if the legislatures were to divest the regular
courts of their jurisdiction in all matters and entrust the
same to the newly created Tribunals which are not en-
titled to protection similar to the constitutional protection
afforded to regular courts. [para 8] [1223,H; 1224,A-B] D
L Chandra Kumar vs. Union of India and Ors. 1997
(2) SCR 1186 = (1997) 3 sec 261 - relied on.
2. Inasmuch as the amended/proposed provisions,
as mentioned in para 9 of the judgment are in tune with E
the scheme of the Constitution as well as the principles
laid down by this Court, the same are approved and the
respondent-Union of India is directed to implement them,
as expeditiously as possible. [para 9-1 OJ [1231,A-B]
Case Law Reference F
1997 (2) SCR 1186 relied on para 8
CIVIL ORIGINAL JURISDICTION: Writ Petition (Civil) No.
634 of 2007
G
(Under Article 32 of the Constitution of India)
K.K. Venugopal, V. shekhar, Ameet Singh and Pramod
)
Swarup for the Petitioner.

Gopal Subramanium, A.S.G., M. Chandrashekharan, H
1220 SUPREME COURT REPORTS [2008] 13 S.C.R.

A A.S.G., Satyakam, Vikas Sharma (for B.V. Balaram Das) and
Dinesh Kr. Garg for the Respondent.

The Judgment of the Court was delivered by

P. SATHASIVAM, J. 1. Ms. Pareena Swarup, member of
B the Bar, has filed this writ petition under Art. 32 of the Constitu- ,_
tion of India by way of Public Interest Litigation seeking to de-
clare various sections of the Prevention of Money Laundering
Act, 2002 such as Section 6 which deals with adjudicating au-
thorities, composition, powers etc., Section 25 which deals with
c the establishment of Appellate Tribunal, Section 27 which deals
with corn position etc. of the Appellate Tribunal, Section 28 which
deals with qualifications for appointment of Chairperson and
Members of the Appellate Tribunal, Section 32 which deals with
resignation and removal, Section 40 which deals with mem-
bers etc. as ultra vires of Arts. 14, 19 (1 )(g), 21, 50, 323B of the
D
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:
E The Prevention of Money Laundering Act, 2002 (hereinaf-
ter referred to as "the Act") was introduced for providing pun-
ishment 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
F 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 institu-
tions and intermediaries to maintain record of the transactions
G and to furnish information of such transactions within the pre-
scribed time. In exercise of powers conferred by clause (s) of
sub-section (2) of Section 73 read with Section 30 of the Pre-
vention of Money-Laundering Act, 2002 (15 of 2003), the Cen- •
tral Government framed rules regulating the appointment and
H conditions of service of persons appointed as Chairperson and
PAREENA SWARUP v. UNION OF INDIA 1221
• [P. SATHASIVAM, J.]

Members of the Appellate Tribunal. These rules are the Pre- A
vention of Money-Laundering (Appointment and Conditions of
Service of Chairperson and Members of Appellate Tribunal)
Rules, 2007. The Central Government has also framed rules
..._I called the Prevention of Money Laundering (Appointment and
~
Conditions of Service of Chairperson and Members of Adjudi- B
eating Authorities) Rules, 2007.

3. It is highlighted that the provisions of the Act are so pro-
vided 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 Rev-
c
enue Secretary. It is further pointed out that the Constitutional
guarantee of a free and independent judiciary, and the constitu-
tional scheme of separation of powers can be easily and seri-
ously undermined, if the legislatures were to divest the regular
... Courts of their jurisdiction in all matters, entrust the same to the D
newly created Tribunals. According to the petitioner, the statu-
tory provisions of the Act and the Rules, more particularly, re lat-
ing to constitution of Adjudicating Authority and Appellate Tribu-
nal are violative of basic constitutional guarantee of free and
independent judiciary, therefore, beyond the legislative com- E
petence of the Parliament. The freedom from control and po-
tential domination of the executive are necessary pre-condi-
tions 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 F
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 affida- G
vit repudiating the claim of the petitioner. The Department high-
lighted that the impugned Act has not ousted the jurisdiction of
)
any courts and sufficient safeguards are provided in the ap-
pointment of officers of the Adjudicating Authorities, Members
and Chairperson of the Appellate Tribunal. H
1222 SUPREME COURT REPORTS [2008] 13 S.C.R.
~

A 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 Ap-
pellate Tribunal. Considering the stand taken by the petitioner
with reference to those provisions, we requested Mr. K.K.
B Venugopal, learned senior counsel, to assist the Court. Pursu- •
ant to the suggestion made by the Court, Mr. K.K. Venugopal
and Mr. Gopal Subramaniam, learned Additional Solicitor Gen-
eral, discussed the above issues and by consensus submitted
certain proposals.
c 6. The petitioner has highlighted the following defects in
the Adjudicating Authority Rules, 2007 and the Appellate Tribu-
nal Rules, 2007:-

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

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

E
adequate control to Judiciary. •
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
F judiciary and executives.
..
4. Rule 32(2) of PMLA which provides for removal of
Chairperson/Members of Tribunal under PMLAdoes not
provide adequate safety to the tenure of the Chairperson/
Members of the Tribunal.
G
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."
H
PAREENA SWARUP v. UNION OF INDIA 1223
[P. SATHASIVAM, J.]

6. Section 28(1) of PMLA, which allows a person who "is A
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 111..~ninate a person for appointment
as Chairperson of Appellate Tribunal under PMLA "who B
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 C
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 o
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 suggested certain
amendments in the line of the constitutional provisions as
interpreted by this Court in various decisions. E

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 exer-
cised by the duly constituted Courts. While creating dew av-
enue of judicial forums, it is the duty of the Government to see F
that they are not in breach of basic constitutional scheme of
separation of powers and independence of the judicial func-
tion. 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 G
the cases under the Act but the Members and the Chairperson
to be selected by the Selection Committee headed by Rev-
enue Secretary. It is to be noted that this Court in the case ofL
Chandra Kumar vs. Union of India and Ors., (1997) 3 SCC
261 has laid down that power of judicial review over legislative H
1224 SUPREME COURT REPORTS [2008] 13 S.C.R.

A action vested in the High Courts under Article 226 as well as in
this Court under Article 32 of the 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 pow-
8 ers can be easily and seriously undermined, if the legislatures
were to divest the regular courts of their jurisdiction in all mat-
ters, 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 impar-
C tiality 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 safe-
guards which ensure independence and impartiality are not for
promoting personal prestige of the functionary but for preserv-
D ing and protecting the rights of the citizens and other persons
who are subject to the jurisdiction of the Tribunal and for ensur-
ing 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 indepen-
E dence and impartiality of judges. To make it clear that a judi-
ciary free from control by the Executive and Legislature is es-
sential ifthere is a right to have claims decided by Judges who
are free from potential domination by other branches of Gov-
ernment. With this background, let us consider the defects
F 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 sug-
G gestions formulated by Mr. K.K. Venugopal would be incorpo-
rated 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.
H
PAREENA SWARUP v. UNION OF INDIA 1225
) [P. SATHASIVAM, J.]

S.No. Issues Amended/Pro- Remarks A
posed provision .
1. · Rule 3(3) of Rule 3(3) of Adjudicat- Action com-
Adjudicating ing Authority Rules, p I e t e d .
Authority 2007 have been Am e.n d e d
Rules, 2007 amended to specify Rule as per B
does not ex- the 'academic qualifi- annexureA
plicitly specify cation' for the Mem~
the qualifica- ber from the field of fi-
tions of mem- nance and accounting
ber from the by inserting a sub- c
field of finance clause (b) as follows:
or accoun-
"(b) From among such
tancy.
persons, the Selection ·
Committee shall have
D
due regard to the aca-
demic qualificatiol'ls
of chartered accoun-
tancy or a degree in fi·
nance, economics or
accountancy or hav- E
ing special experi-
ence ih finance or ac- ·
counts by virtue of
having worked for at
least two years in the F
finance or revenue de-
partment of either the
Central Government
or a State Govern-
ment or being G
incharge of the fi-
nance or accounting
wing of a corporation
for a like period."
1226 SUPREME COURT REPORTS [2008] 13 S.C.R.

A
2. Rule 4 of Ap- Rule 4 of Appellate Tri- Action com-
pellate Tribunal bunal Rules, 2007 has pleted.
Rules, 2007 been amended to un- Amended
which provided ambiguously provide Rule as per
for Method of that the appointment of annexure B
B Appointment Chairperson shall be
of Chairperson made on the recom-
do not give ad- mendation of the Chief
equate control Justice of India.
to Judiciary.
c 3. Rule 6(1) of Rule 6(1) of Appellate Action com-
Appellate Tri- Tribunal Rules, 2007 pleted.
bunal Rules, has been amended to Amended
2007 which provide that the Chair- Rule as per
defines the person of Appellate annexure C
D
Selection Tribunal is appointed
Committee for on the recommenda-
recommend- tion of the CJI and the
ing appoint- composition of the
men! of Mem- Selection Committee
E bers of the Tri- to select Members of
bunal, would the Tribunal has been
undermine the amended to provide
constitutional for a Judge of the Su-
scheme of preme Court, nomi-
F separation of nated by the Chief Jus-
powers be- tice of India, to be the
tween judiciary Chairperson of the Se-
and execu- lection Committee.
lives.
G
4. Section 32(2) Appropriate amend- Draft Bill is un-
of PMLA which ment to the Statute is der prepara·
provides for re· being proposed to un- tion.
moval of Chair- ambiguously provide
person/Mem- that Chairperson/
H
) PAREENA SWARUP v. UNION OF INDIA 1227
[P. SATHASIVAM, J.]

A
bers of Tribu- Members appointed Draft Bill is un-
na I under in consultation with der prepara-
PMLA does Chief Justice of India, tion.
not provide ad~ shall not be removed ,
equate safety without ·mandatory
to the tenure of consultation with Chief B
the Chairper- Justice of lndic;i.
son/members
. of the Tribunal.
5. Rule 6(2) of Rule 6(2) of the Appel- May be de- c
Appellate Tri- late Tribunal Rules, leted.
bunal Rules is 2007 may be
vague to the amended to delete the
extent that it words "or on recom-
provides for mendation of the ap-.
D
recommend- propriate authorities",
ing names af- a proposal endorsed
ter "inviting ap- by ASG, Shri Gopal
p Ii cations Subramaniam.
thereof by ad-
vertisement or E
on the recom-
mendations of .

the appropri-
ate authori-
ties." F

6. . Section 28(1) There are several Acts There is no re-
of PMLA, under which Judges quirement to
which allows a and those 'qualified to amend either
person who "is be a judge' are equally the Statute of
G
qualified to be eligible for selection the Rules.
a judge of the like for Chairman un-
High Court" to der NDPS Act and
be the Chair- SAFEMA; Judicial
person of the member under Admin
H
1228 SUPREME COURT REPORTS [2008] 13 S.C.R.

A
Tribunal, istrative Tribunal Act;
should be ei- Chairperson under
ther deleted or FEMA etc. The eligibil-
the Rules may ity criteria, for appoint-
be amended ment as a judge of a
B to provide that High Court, provided
the Chief Jus- in the Constitution of
tice of India India under Article
shall nominate 217(2)(b), is that the
a person for person should have
c 3.
appointment been "for at least 1O
as Chairper- years as an advocate
son or Appel- of a High Court ... " Fur-
late Tribunal thermore, since ap-
under PMLA pointment of Chairper-
D "who is or has son of the Tribunal un-
been a Judge der PMLA is to be
of the Su- made on the recom-
preme Court or mendation of CJI, it is
a High Court" expected that an inde-
E failing which a pendent person would
person who "is be appointed to head
qualified to be the Appellate Tribunal.
a judge of the
High Court."
F 7. The qualifica- 1. Persons 'qualified to There is no re-
tions for Legal be a district Judge' are quirement to
Member of the treated at par with Dis- amend either
Adjudicating trict Judges for the pur- the Statute or
Authority poses of qualification the Rules.
G should exclude for appointment as
"those who are member in ATFE under
qualified to be FEMA; as President of
a District District Forum under
Judge" and Consumer Protection
H onlv servina or Act. 1986 etc. The eli-
' . PAREENA SWARUP v UNION OF INDIA
[P. SATHASIVAM, J.]
1229

retired District A
gibility criterion, for ap-
Judges should pointment as a District
be appointed. Judge, provided in the
The Chairper- Constijution of India un-
son of the Ad- der Article 233(2), is that
judicating Au- the person should have B
thority should been an advocate "for not
be the Legal less than seven years''.
member.
2. PMLA is a special-
ized and new Act and c
District Judges may not
be available with expe-
rience in related issues
whereas Advocates or
officers of Indian Legal
D
Service, who are eli-
gible to be District
Judges, may often
have greater know!-
edge of its provisions
and working. E

3. The Adjudicating Au-
thority is a body of ex-
perts from different fields
to adjudicate on the is- F
sue of confirmation of
provisional attachment
of property involved in
money laundering. The
functions of Adjudicating
G
Authority are civil ir1 na-
ture to the extent that it
does not decide on the
criminality of the offence
nor does it have power
H
1230 SUPREME COURT REPORTS [2008] 13 S.C.R.

A to levy penalties or im-
pose punishment.
4. Adjudication is a func-
tion which is performed
B by Executives under
many statutes. The
Competent Authority
under NDPS/SAFEMA
have been conducting
Adjudication proceed-
c ings routinely since
1978 and in the last four
years i.e. 2004-2008,
Competent Authority
has taken 1374 new
D cases, issued 275
SCNs, forfeited 162
properties and dis-
posed of 30 properties
without any judicial ob-
E jections. Similar adjudi-
cations are done by
Custom Authorities un-
der Custom Act or by
Authorities under
F FE MA/FERA.
5. The Adjudicating Au-
thority, being a body .of
experts from different
fields, with a role as de-
G scribed in para 3 above,
appointment of its Chair-
person should be left to •
the recommendation of
the Selection Committee.
H
PAREENA SWARUP v. UNION OF INDIA 1231
[P. SATHASIVAM, J.)

10. Inasmuch as the amended/proposed provisions, as A
mentioned in para 9, are in tune with the scheme of the Consti-
tution as well as the principles laid down by this Court, we ap-
prove the same and direct the respondent-Union of India to
implement the above provisions, if not so far amended as sug-
gested, as expeditiously as possible but not later than six B
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 Addi. Solicitor General. c
R.P. Writ Petition disposed of.

•