ED AND PMLA INVESTIGATIONS- RECENT SUPREME COURT OBSERVATIONS ON MISUSE OF POWER

This article is written by SONAKSHI MAITY during her internship with Le Droit India.

This article is written by Sonakshi Maity, a post graduate of Haldia Law College, pursued LLM interning at LeDroit India.

ABSTRACT

The Enforcement Directorate (ED) in India, empowered by the PMLA, 2002 has been entrusted with investigating and enforcing laws related to money laundering. Few concerns arise regarding the abuse of discretionary powers vested in the ED. This study examines the extent of such abuse , highlighting instances of arbitrary arrests and selective targeting. It also mentioned the judicial decisions.

Keywords: Enforcement Directorate, PMLA, money laundering, discretionary powers, abuse of power.

INTRODUCTION

Whoever does any act to conceal the source, ownership or use of illicit funds or assets is involved in Money laundering. It is often done to avoid taxes, legal consequences or invest in some legitimate businesses. Mainly, money laundering cases are influenced by politics, with their roots going all the way down to corruption.

So, The Prevention of Money Laundering Act, 2002(PMLA) was approved to fight against money laundering. It came into force on July

1, 2005. The Enforcement Directorate is the designated authority under the PMLA to investigate cases of money laundering. The ED can also take suo motu cognizance of any offence under the PMLA. The PMLA also provides for the attachment and seizure of such property, those assets which are generated through criminal activities as well as the prosecution and punishment of the offenders. However, concerns have been raised regarding the potential abuse of discretionary powers vested in the ED.

ED discretionary power under PMLA

Section 16 (Power of Survey): The ED has the power to conduct surveys of any place where it has reasons to believe that an activity related to money laundering is taking place.
Section 17(Search and Seizure): The ED can search premises and seize property (movable or immovable) if it has reason to believe they are related to the offence of money laundering. No prior court permission is required.

Section 19(Power to Arrest): The ED can arrest individuals involved in money laundering if the officers has reason to believe, based on material evidence that the person is guilty.

Section 20(Retention of Property): Seized property can be retained by the ED if the Adjudicating Authority permits after it gets satisfied with the evidence produced by the ED.
Section 5 (Provisional Attachment of Property): The ED can provisionally attach property if it is suspected of being the “proceeds of crime” for a period of 180 days after confirmation by the Adjudicating Authority.

ED’s Power to Arrest

Under Section 19 of the PMLA, an ED officer must have “reason to believe,” based on the material in their possession that the accused is guilty of the particular offence and this belief must be recorded and communicated to the accused at the time of arrest. Further, the arrested person has to be presented before the Special Judicial Magistrate or Metropolitan Magistrate within 24 hours of his arrest excluding the time of his journey.

As per Section 45 of the PMLA, the offence of money laundering is cognizable i.e. ED has the authority to arrest without any warrant and also non- bailable offence i.e the bail can be granted by special court and not by ED. The Supreme Court also upheld the “twin conditions” for bail in Section 45 and said that Parliament is competent to amend it to cure the “defects” in its judgement in the Nikesh Tarachand Shah v. Union of India, which had struck down the twin conditions. For bail under the PMLA, the court must find prima facie that the accused is not guilty. In the Vijay Madanlal Chaudhary case, the Supreme Court upheld the stringent bail provisions.

The Legal Validity of Vijay Madanlal Case

In the 2022 Vijay Madanlal Chaudhary ruling, the Supreme Court upheld the constitutional validity of section 19 of the PMLA.

While the court did not address the necessity of arrest or the standard of evidence required, it affirmed that the extensive power to arrest is not unconstitutional.

The Supreme Court endorsed a key argument by the ED that only high-ranking officials, after recording reasons in writing can authorize an arrest.

The court noted that granting this power to high-ranking officials combined with the requirement to provide reasons in writing, ensures reasonablesness and minimizes the risk of arbitrariness.

Powers of the Adjudicating Authority

Section 8 (Adjudication): The Adjudicating Authority is responsible for confirming the attachment of properties provisionally attached by the ED. It has the discretion to confirm or reject such attachments.

Section 8(6) (Confiscation of Property): After the confirmation of attachment, the Adjudicating Authority can order the confiscation of property if the property is linked to money laundering.

Powers of the Director or Authorized Officers

Section 50(Powers to Summon, Compel Attendance and Produce Documents): The Director or any authorized officer has the discretion to summon people, compel attendance and demand documents for investigation purposes.

Section 60(Freezing of Accounts): The Director or other officers can freeze bank accounts or transactions if it is related to proceeds of crime. This power can be exercised without a court order and obviously during investigations.

Confiscation of Property

Section 20(Retention of Seized Property): The officer who seized the property can retain it for further investigation after authorization from the Adjudicating Authority.

Section 9(Vesting of Confiscated Property): Once property is confiscated by the Special Court, it vests with the central government by following the decision of the Adjudicating Authority.

Arbitrary exercise of power under PMLA

The PMLA empowered the Directorate of Enforcement (ED) with the authority to trace and seize assets derived from criminal activities. Over time, the PMLA’s implementation became stringent and stubborn. Suddenly those accused found themselves facing the daunting possibility of having their properties confiscated and their freedom curtailed which means Article 21 Right to Personal Life and Liberty is violated at the discretion of the authorities. The ruthless seizure of assets by the ED struck fear among those who earned wealth through honest means. However the power of ED has been misused by arresting individuals without sufficient evidence or grounds of arrest. Yet, the Indian Judiciary has consistently stood as a ray of hope by safeguarding constitutional principles and maintaining a balance between the enforcement of the law and the protection of citizens’ rights. Through a series of landmark judgements, the courts have created a web of safeguards, a fine balance that ensures the PMLA’s effectiveness while safeguarding the sacred rights of the accused. These judicial interventions have become a shield against the arbitrary exercise of power.

In the case of Arvind Kejriwal vs. Enforcement Directorate, the Supreme Court raised concerns about the misuse of arrest powers under the Prevention of Money Laundering Act (PMLA). The Court held that the power of arrest given to ED officers under Section 19(1) of the PMLA is drastic and can violate an individual’s right to life and liberty under Article 21 of the Constitution if misused. The Court held that ED officer’s subjective opinions should not be based on mere suspicion but on the basis of evidence. The court also stated that the accused persons should be provided with written reasons for their arrest. This judgement ensures that arrests are fair and not arbitrary.

Karti Chidambaram vs. Enforcement Directorate, Karti Chidambaram was arrested by the ED in connection with the INX Media case. Critics argued that the arrest was politically motivated and unnecessary. This case highlights the ED’s misuse of arrest powers targeting people for political purposes.

Satyendar Jain vs. Enforcement Directorate, Satyendar Jain was arrested by the ED in connection with a money laundering case. Critics argued that the arrest was unnecessary as he was already cooperating with the Investigation. This case demonstrates the ED’s tendency to misuse its arrest powers and targeting for political purposes.

SUPREME COURT ON ED’s ARREST POWERS UNDER PMLA

The court emphasized that the ED’s power to arrest must not be exercised arbitrarily but should be based on fair consideration of evidence.
The court raised concerns about whether the ED has a consistent and uniform policy for arrests.
The court stated that the power to arrest must be exercised based on an objective and fair evaluation of the material against an individual.
This decision made it clear that arrests should not be made on mere whims and fancies of ED officers.
Justice Sanjiv Khanna, presented data on ED activities from 2023:

i) Enforcement Case Information Reports (ECIRs): 5,906 registered by December 31, 2023.

ii) Searches Conducted: 531 ECIRs led to the issuance of 4,954 search warrants.

iii) Cases Involving Politicians: 176 ECIRs recorded against ex-MPs, MLAs and MLCs.

iv) Arrests and Prosecutions: 513 persons were arrested and 1,142 prosecution complaints were filed.

This data raised questions about the consistency and transparency of the ED’s actions.

Supreme Court’s Analysis

The court stated that the ED’s reasons for believing that a person is guilty should not be based on mere Suspicion i.e. Suspicion, requiring a lower degree of satisfaction, does not equate to belief.

Belief must be beyond doubt and grounded in fair and objective consideration of the available material at the time of arrest.

Under PMLA, an accused should be provided with written reasons explaining their guilt and the justification for their arrest.

This ensures transparency and accountability in the arrest process.

CONCLUSION

Most of the important provisions pertaining to the procedure of investigation in the matters of money laundering have been challenged before the hon’ble SC and those matters are still sub-judice. PMLA is a statute which has multiple loopholes in it that are needed to be plugged in by the judiciary and legislature. The abuse of discretionary power by enforcement directors under the Prevention of Money Laundering Act poses significant risks to justice and accountability. Strengthening legal frameworks and promoting accountability can help safeguard against misuse of power, ultimately enhancing the integrity of the financial regulatory system.

REFERENCES