MISUSE OF PMLA: ARE ED ARRESTS VIOLATING THE POWER OF PERSONAL LIBERTY

This article is written by Neha Parveen, SOA national Institute of Law, BA LL.B during her internship with Le Droit India.

KEYWORDS

Enforcement Directorate, PMLA (Prevention of Money Laundering Act), Arbitrary, Adequate evidence, Fair trial, Quell dissent.

ABSTRACT

The Enforcement Directorate’s (ED) abuse of PMLA (Prevention of Money Laundering Act) arrests has sparked worries about possible abuses of the right to a fair trial and personal freedom. To prevent arbitrary actions and guarantee that arrests are founded on adequate evidence rather than just suspicion, recent court rulings including those from the Supreme Court have emphasized the necessity of checks and balances on the ED’s arrest authority. The PMLA’s strict bail requirements and the burden of proof placed on the accused have drawn criticism for their implementation, which has resulted in extended detention without trial despite the law’s stated goal of preventing money laundering. It is believed that the PMLA deviates from the innocence until proven guilty principle by placing a heavy burden on the accused to establish their innocence. Instead of concentrating only on legitimate money laundering cases, there are worries that the PMLA is being used as a weapon to target political rivals and quell dissent. The PMLA is an important law to fight money laundering, but its implementation has sparked worries about possible abuses of fundamental rights and the need for more stringent adherence to the principles of due process and equality of trial.

INTRODUCTION

The PMLA, 2002 was adopted in response to the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances. Additionally, the state parties to that convention were urged to take steps to stop the laundering of drug-related proceeds and other related activities. Following a summit in Paris in 1989, seven major industrialized nations formed the Financial Action Task Force (FATF) to study the issue of money laundering and suggest solutions to combat this threat. The United Nations General Assembly (UNGA) then passed a resolution on the Political Declaration and Global Programme of Action in 1990, urging all member states to enact appropriate legislation to effectively prevent drug money laundering. The act defines money laundering broadly to include any procedure or action meant to justify proceeds obtained illegally, including those resulting from criminal activity. According to the act, money laundering is illegal, and those found guilty face severe punishments, including fines and jail time. Several authorities coordinate the enforcement of the PMLA, with the Enforcement Directorate (ED) leading the charge. Investigating and prosecuting offenses under the act is the responsibility of the ED. The Prevention of Money Laundering Act, 2002 was subsequently passed by the Indian Parliament. Notwithstanding the effectiveness of this Act, certain issues regarding due process, individual rights, and the possibility of legal abuse are still brought up by its provisions.

In India, combating economic crime and upholding economic laws are the responsibilities of the Enforcement Directorate, a law enforcement and economic intelligence organization. The Ministry of Finance’s Department of Revenue oversees its operations. The Directorate submits reports to the Department of Revenue for administrative purposes. However, all policy issues pertaining to the PML Act are under the jurisdiction of the Department of Revenue. Prior to FEMA’s implementation on June 1st, 2000, the Directorate enforced regulations under the Foreign Exchange Regulation Act of 1973. In accordance with the Foreign Exchange Regulation Act of 1947, it was established to handle violations of the Exchange Control Law.
As an “Enforcement Unit,” it was first created in 1956 under the Department of Economic Affairs and transferred to the Department of Revenue for management in 1960. An expert in financial law enforcement and economic intelligence, the Enforcement Directorate (ED), also known as the Directorate of Enforcement, is an Indian agency.
It operates within the Union Ministry of Finance, Government of India, under the administrative direction of the Department of Revenue.
Enforcing economic laws and fighting economic crimes, especially those involving money laundering and foreign exchange law violations, is the ED’s main mandate.

The Enforcement Directorate (ED) is no longer able to arrest an accused person after a special court receives a chargesheet submitted under the Prevention of Money Laundering Act (PMLA), according to a recent Supreme Court decision.

The ruling highlights how personal liberty cannot be violated and restricts the ED’s ability to make arrests.

WHAT IS THE SUPREME COURT’S MOST RECENT RULING ON PMLA?

PROVISIONS IN QUESTION

The ruling resulted from an appeal against the ED that contested a Punjab and Haryana High Court ruling that had denied anticipatory bail.
The case looked at whether an accused person could request bail under the standard provisions of the Code of Criminal Procedure (CrPC) and, if if they could, whether they would also need to meet the twin requirements under Section 45 of the PMLA.
The court also considered whether an accused person who was not arrested during the PMLA investigation would be subject to the strict PMLA bail requirements if they showed up in court after being summoned or having a warrant issued for their non-attendance.
SC OBSERVATIONS

Situation of Accused Appearing on Summons: Under the strict guidelines set forth by the PMLA, an accused person who shows up before a designated special court in response to a summons is not considered to be in custody and is not required to apply for bail.

When an accused person appears in court and provides specific grounds that require custodial interrogation, the ED must separately apply for custody of the accused.
Protecting the fundamental right to personal liberty requires implementing this presumption of liberty.

Character of Bonds/Sureties: In accordance with Section 88 of the Code of Criminal Procedure, the special court may order the accused to furnish a surety or guarantee (bonds).

Nonetheless, this guarantee does not entail meeting the strict twin requirements of Section 45 of the PMLA and is not equivalent to granting bail.

Graded Arrest Process: The special court may first issue a bailable warrant (where bail can be obtained) if the accused does not show up for the court despite being summoned.

The court may then issue an arrest without bail, or a non-bailable warrant, if the accused does not show up.

Arresting Non-Accused Parties: When a person is not listed as an accused in the original PMLA complaint, the ED is still able to make an arrest with them.

But to do so, the ED needs to adhere to the correct arrest protocols specified in PMLA Section 19.

WHAT IS PMLA?

To deter money laundering and allow for the seizure of assets obtained through money laundering, the Prevention of Money Laundering Act, 2002 (PMLA) was passed. Its goal is to stop money laundering associated with illicit activities like smuggling, drug trafficking, and financing terrorism. Money laundering offenses are defined by the PMLA, which also establishes penalties for them. Offenders face harsh incarceration and fines. The process of turning money obtained illegally into money that appears to be legitimate is known as money laundering.

Property Attachment and Confiscation: The Act permits the confiscation and attachment of assets used in money laundering. It calls for the creation of an adjudicating authority to supervise these actions.
Reporting Requirements: The PMLA requires businesses, including banks and financial institutions, to keep track of transactions and notify the Financial Intelligence Unit (FIU) of any suspicious activity.
Appellate Tribunal: An Appellate Tribunal is established under Section 25 of the PMLA and has the authority to consider appeals against decisions made by the Adjudicating Authority.

RECENT AMENDMENTS RELATED TO PMLA

Restoring Confiscated Property through the Prevention of Money-Laundering Amendment Rules, 2019:
The Special Court may post notices in newspapers requesting that claimants with a legitimate interest in property that has been attached, seized, or frozen prove their claims for restoration following the framing of charges under the newly inserted Rule 3A.

Prevention of Money Laundering (Records Maintenance) Amendment Regulations, 2023: To increase the amount of information that reporting entities like banks, financial institutions, and intermediaries must disclose to NGOs, the Finance Ministry updated its money laundering regulations.

In accordance with the recommendations of the Financial Action Task Force (FATF), it has also clarified the definition of “politically exposed persons” under the Prevention of Money Laundering Act (PMLA).
“Politically Exposed Persons” (PEPs) are defined by the new PMLA compliance rules as those who have been entrusted with high-profile public positions by a foreign nation, including heads of state, senior politicians, high-ranking government, judicial, or military officials, senior executives of state-owned corporations, and significant political party officials.

IS FAIR PROCEDURE AND ACCOUNTABILITY BEING ENSURED IN ARREST POWERS UNDER THE PMLA?

One of the main pillars of India’s fight against financial crimes is the Prevention of Money Laundering Act (PMLA), but its implementation—particularly regarding its arrest authority—has long been a source of legal and procedural controversy. The judiciary’s crucial role in achieving a balance between upholding individual rights and enforcing the law is demonstrated by the developing jurisprudence on the ED’s authority under the PMLA. As the Enforcement Directorate (ED) persists in transgressing the fine line between its mandate to combat money laundering and safeguard constitutional rights, the judiciary has been instrumental in improving the guidelines for arrest practices. The extent of the ED’s authority has been made clear by recent rulings and developing jurisprudence, which also emphasizes the necessity of procedural protections.

NOTIFICATION OF GROUNDS FOR ARREST AND PROCEDURAL CONCERNS

Although it is debatable whether this is always done, current legal requirements require the ED to inform an arrestee of the reasons for their arrest within 24 hours. Because the arrestee and the court might not be aware of the reasons for the arrest, this ambiguity compromises bail hearings. Courts have examined this procedural gap more closely, pointing out that it goes against the principles of justice. Furthermore, the absence of a formal, paginated case diary by the ED creates irregularities and grants it unrestricted discretionary power to name or implicate people selectively, raising questions about the fairness and transparency of its processes.

ENFORCEMENT PATTERNS AND BROADER CONCERNS

Delhi Chief Minister Arvind Kejriwal contested his ED arrest, and the Supreme Court granted him temporary bail while delving into the ED’s more general enforcement practices. Using data from 2023, Justice Sanjiv Khanna, who wrote the decision, highlighted the ED’s inconsistent practices. As per the data, by December 31, 2023, 5,906 Enforcement Case Information Reports (ECIRs) had been filed; however, only 531 of these cases involved searches, resulting in the issuance of 4,954 search warrants. Interestingly, 513 people were arrested while 176 ECIRs were filed against political figures, including former MPs, MLAs, and MLCs.

The Supreme Court stressed that the ED’s authority to make an arrest under Section 19(1) of the PMLA must be used objectively and not at the officers’ whim. This was important when granting temporary bail. The court emphasized that this authority should be consistent with Article 21 of the Constitution, which protects the right to life and liberty, and warned against the unbridled exercise of power that may result in violations of fundamental rights.

CRITICISM OF UNFERATTERED ARREST POWER

The ED’s power to deny the accused access to critical information, like the ECIR, along with extensive interrogation powers that allow for retroactive justifications for arrests and summonses, are major criticisms of the PMLA. Potential constitutional violations and a lack of protections are issues raised by these practices. The ED’s secret internal handbook also exacerbates the transparency problems. The Schedule of the PMLA also reclassifies offenses that were previously eligible for bail as non-bailable, thereby weakening the bail provisions of predicate offenses in special acts such as the Bonded Labour System (Abolition) Act. This gives the State the authority to apply more stringent PMLA provisions in situations where bail would normally be required.

SECTION 19 OF THE PMLA AND INTERPRETATION ISSUES

As a result of concerns about verbal communications, which frequently resulted in disagreements over whether the accused had been properly informed, the Supreme Court decided in Pankaj Bansal v. Union of India (2023) that the grounds for arrest must be provided in writing going forward. Section 19 of the PMLA gives ED officers the authority to arrest people based on “reasons to believe” that they are guilty of money laundering, but it is unclear how these grounds should be stated. The Court upheld the constitutionality of Section 19 in Vijay Madanlal Choudhary v. Union of India (2022), but stressed the need for transparency in the arrest process, especially given the strict bail provisions under the PMLA.

ILLUSTRATIONS

On Thursday, the Directorate of Enforcement (ED) Chandigarh zone reported that it had frozen 40 bank accounts and three bank lockers, as well as seized two luxury cars valued at Rs 32 lakh, connected to Himachal Pradesh assistant drug controller (ADC) Nishant Sareen and his colleague Komal Khanna. There are accusations of corruption and extortion against the pair. According to the ED, they also seized documents that implicated Khanna and Sareen. Following ED’s Sunday and Monday raids on seven residential and commercial properties connected to the accused, the action was taken. The raids came after a new enforcement complaint information report (ECIR) was filed against them, according to ED officials. This ECIR is connected to a criminal case that was filed against Sareen and Khanna by the Himachal Pradesh anti-corruption bureau (ACB) and the Haryana police department’s Panchkula police.
A political figure from the opposition is charged with money laundering shortly before elections. raids and arrests are carried out by the Enforcement Directorate (ED) even though no chargesheet has been filed and the case is still being investigated.
For a transaction that took place prior to the offense being listed as a scheduled offense under the Act, a person is prosecuted under the PMLA.
Even in cases where the evidence is weak, a small businessman is charged under the PMLA and denied bail because of the twin conditions under Section 45. The PMLA makes bail exceedingly difficult and imposes a reverse burden of proof the right to liberty and the presumption of innocence under Article 21.
Although the PMLA ruling in Vijay Mandala v. Union of India, 2022, upheld several provisions, it was later re-examined considering the Pankaj Bansal case and other instances of liberty violations. The 1978 Maneka Gandhi case: A procedure that denies someone their freedom must be reasonable, fair, and just.

CASE ANALYSIS

Directorate of Enforcement vs. Subhash Sharma:

The Directorate of Enforcement (ED) appealed the High Court of Chhattisgarh’s decision to grant bail to the respondent, Subhash Sharma, but the Supreme Court of India rejected the case. Section 4 of the Prevention of Money Laundering Act, 2002 (PMLA) contained allegations of money laundering. The respondent’s fundamental rights under Articles 21 and 22 of the Constitution were violated by his unlawful arrest, which is why the High Court granted bail.

Facts

In accordance with an ED Look Out Circular (LOC), the respondent, Subhash Sharma, was arrested on March 4, 2022, at IGI Airport in New Delhi.
He was detained by the Bureau of Immigration until the ED took him into physical custody on March 5, 2022, at 11:00 AM.
On March 6, 2022, in Raipur, the ED prepared an arrest memo at 1:15 AM.
The High Court determined that the respondent’s arrest was unlawful under Article 22(2) of the Constitution since he failed to appear before the closest magistrate within 24 hours of his apprehension.

Issues

Was it lawful for the ED to arrest the respondent?
Did the respondent’s fundamental rights under Articles 21 and 22 get in the way of his appearance before the closest magistrate within 24 hours of his detention.
Given the illegality of the arrest, was the High Court right to grant bail?

Observations

Legality of arrest:

According to the Court, the respondent was arrested by the Bureau of Immigration on March 4, 2022, and took into ED custody at 11:00 AM on March 5, 2022.
On March 6, 2022, at 1:15 AM, the arrest memo was prepared, and at 3:00 PM, the respondent was brought before the magistrate.
The Court noted that Article 22(2) of the Constitution was violated when the respondent was not brought before the closest magistrate within 24 hours of his arrest.

Violation of Fundamental Rights:

According to the Court, the respondent’s right to liberty under Article 21 and his right against unlawful detention under Article 22(2) were both violated by the failure to produce him within 24 hours of his capture.
The respondent could not be held in custody because of this violation, the Court stressed, which vitiated the arrest.

Applicability of section 57 of Cr.PC:

The Court explained that, through Section 65 of the PMLA, production before a magistrate within 24 hours is required under Section 57 of the Code of Criminal Procedure (Cr.P.C.).

Grant of Bail:

The Court affirmed the High Court’s bail decision, holding that bail cannot be refused for unfulfilled twin conditions under Section 45 of the PMLA when an arrest is unlawful or vitiated.

Judgement

The ruling firmly upholds the Constitution’s protections against arbitrary detention under Article 22(2) and the sanctity of individual liberty under Article 21. It emphasizes the fact that no one can be deprived of their freedom without following the proper legal procedures, and that any infringement on these rights makes an arrest unlawful.
The Court made clear that the accused must be released on bail if an arrest is determined to be unlawful or tainted by violations of fundamental rights. The strict requirements under Section 45 of the PMLA which normally call for the satisfaction of twin tests for bail are superseded by this principle.

The decision eliminates any doubt as to whether an unlawful arrest can serve as the only justification for granting bail. It lays out that bail cannot be refused based only on the failure to meet special requirements under laws such as the PMLA when an arrest is vitiated by constitutional violations. Investigative agencies, including the ED, are strongly reminded by the ruling to closely follow procedural and constitutional protections when making arrests. The accused will be released if these protections such as the 24-hour rule under Article 22(2) are not followed. The ruling establishes a noteworthy standard for cases involving unlawful arrests and bail requests in the future. Even in situations involving grave crimes like money laundering, it upholds the idea that constitutional rights cannot be violated.

The Supreme Court’s decision in this case is historic because it puts the defence of fundamental rights ahead of procedural details. The Court has made a clear statement about the significance of protecting constitutional rights by ruling that an unlawful arrest vitiates custody and requires the granting of bail. This ruling guarantees that investigative agencies follow the law while simultaneously bolstering the right to individual liberty. The judgment’s simplicity and clarity make it an effective tool for defending individual liberties against progressively stricter legal requirements.

CONCLUSION

Despite being intended to combat economic crimes and black money, the Prevention of Money Laundering Act (PMLA) has come under increasing fire for being abused by law enforcement, particularly the Enforcement Directorate (ED). Concerns about the violation of personal liberty, a fundamental right guaranteed by Article 21 of the Indian Constitution, have been raised by the repeated arrests and drawn-out investigations that have not resulted in the timely filing of chargesheets or the granting of bail. The PMLA’s opaque processes, which include the reversal of the burden of proof, the restriction of full access to Enforcement Case Information Reports (ECIRs), and strict bail requirements, have made it possible for the accused to be deprived of their freedom without sufficient legal protections. Natural justice and due process of law are compromised by this. Vijay Madanlal Choudhary v. Union of India (2022) was one of the rulings in which the Supreme Court affirmed the constitutionality of several PMLA provisions. Nonetheless, some legal experts contend that the law still permits possible misuse and selective targeting, which is frequently driven by extra-legal or political motivations.

In conclusion, even though the PMLA is a crucial legal instrument for combating financial crime, personal liberty can and does be threatened by its abuse, especially by the ED.

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