-By Gurman Narula
“Economic offences, need to be viewed seriously and considered as grave offences affecting the economy of the country and thereby posing serious threat to the financial health of the country”.
This article critically examines the Enforcement Directorate’s (ED) exercise of authority under the Prevention of Money Laundering Act (PMLA), delving into recent controversies such as the ‘Newsclick’ case and the scrutiny during Manish Sisodia’s bail hearing. Addressing legal nuances, it explores ED’s jurisdiction with references to key cases like Vijay Madanlal and Pankaj Bansal. Amendments via the Finance Act, 2019, and the Supreme Court’s decision to reassess Vijay Madanlal underscore ongoing legal discourse. Despite debates over the extension of powers, proponents argue that such authority is essential for the Act’s objectives and India’s international commitments against money laundering.
Power of ED to Arrest Individuals
Officers of the ED are granted authorisation under Section 19 of the Prevention of Money Laundering Act. This section talks about power to arrest, stating, ‘An officer authorized by the Central government can arrest an individual if materials in their possession indicate guilt for an offense punishable under this act.’
In order to convict an individual under PMLA, it needs to be established that there is a predicate offence through which the accused is accumulating money. This position of law is given u/s 3 of PMLA and has been established under the celebrated judgement of P Chidambaram v Directorate of Enforcement.
As per the interpretation of Section 3, predicate offence refers to those illegal activities that generates fund or proceeds which is further tried under the PMLA as money that has been laundered. Predicate offence serves as the basis or foundation of the offence of money laundering.
Further, Section 3 provides that an individual needs to be involved in an illegal activity and must be receiving funds out of that activity, in order to prosecuted under the provisions of PMLA.
If an individual has been acquitted in the case of a predicate offence or the predicate offence did not survive, the ED will not be able to proceed with its case of money laundering against the individual and the complaint by the ED will hold no value in the eyes of the law as was held in the case of Nayati Healthcare v Union of India, 2023.
During the recent bail hearings of Manish Sisodia under the Delhi liquor scam case, the Supreme court observed that, “ Enforcement Directorate cannot create a predicate offence, the date of predicate offence needs to before the offence of money laundering.”
Section 2(u) explains ‘proceeds of crime’ as, “any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence.”
Scheduled offences are defined u/s 2(y) of PMLA act.
Amendments to PMLA
The Finance Act, 2019 (2019 Act) expanded Section 3 of PMLA to include people who have been found to be directly or indirectly attempted to indulge or knowingly indulge or knowingly assisted or knowingly were a party to the predicate crime.
The legislative intent behind this can be to attach the property of person who are even remotely connected to the crime of money laundering.
The Act also makes the scope of ‘proceeds of crime’ broad by including properties and assets created, derived or obtained through any illegal activity related to predicate offence.
The Act further expanded the power of ED by the deleting the proviso under Sections 17(1) and 18(1) and authorizes the Enforcement Directorate to conduct search operations in the absence of a report under section 154 of CrPC or an FIR.
The intent behind this can be said to make the investigative procedure of ED less complex by not following the procedure laid down in CrPC and treating ED as a body not equivalent to police.
Although the intent behind the amendment will help the ED in solving the crime of money laundering much more effectively and efficiently, it can also lead to misuse of powers by the officers if the power remains unchecked.
Interpretation of Powers of ED by Judicial Decisions
In order to investigate an individual for a crime, an FIR needs to be filed by the police u/s 154 of the CrPC. The Enforcement Directorate can conduct investigations in relation to an activity connected with proceeds or a crime without filing an FIR or ECIR as was held in the case of Vijay Madanlal Choudhary v Union of India. ECIR or Enforcement Case Information Report is an official entry of a complaint lodged under PMLA. The court observed that since there is no mention of an ECIR to be made available to every individual and as it an internal document created by the department, it cannot be construed as equal to an FIR and thus, there is no requirement to file an ECIR for conducting search operations.
The court upheld contentious powers of the Enforcement Directorate (ED) under PMLA, including property attachment (Section 5), possession power (Section 8(4)), burden of proof shift (Section 24), bail conditions (Section 48), and summons/document production (Section 50). It affirmed the necessity of a predicate offence filing for PMLA trial and clarified that informing an individual about arrest grounds during arrest complies with Article 22(1) of the Indian Constitution. Regarding ECIR, the court emphasized providing relevant materials from ED’s complaint under PMLA Section 44(1)(b) before the Special Court.
The Delhi High Court in the case of Pankaj Bansal limited v Union of India cracked down on the unrestricted scope of powers of ED as upheld in the Vijay Madanlal case rather than overruling the case.
Justice AS Bopanna and PV Sanjay Kumar’s ruling restrains Enforcement Directorate (ED) powers, emphasizing informed arrest grounds. Non-compliance with summons doesn’t warrant arrest, and any invalid arrest nullifies remand orders. Retroactive legitimization of illegal arrests is rejected. The court directs case-specific assessments, ensuring ED arrests adhere to Prevention of Money Laundering Act Section 19 during Section 167 CrPC remands. The judgement, a silver lining, balances ED’s powers via Article 20(3) and 22(1), considering ground realities absent in Vijay Madanlal’s ruling.
Recently, the Supreme Court decided to constitute a special bench consisting of Justices SK Kaul, Sanjiv Khanna and Bela M Trivedi to review the decisions of Vijay Madanlal Choudhary. The bench on 18th October decided to hear the matter again on 22nd November. Although this is a departure from normal practice but that is not a sufficient ground to dismiss this matter as the court has the powers to revisit its earlier judgement to make correction and rectify the errors of injustice.
Whether the Powers of ED are Justified
Although ED has been granted some extra powers and that has been the issue of the contention, these powers are justified taken into consideration the objective of the act as has been observed by various jurists.
The powers given under the act are restricted to a certain extent by section 60 and 62 which provides that any officer who acts without due diligence or without any reason shall be punished with fine or imprisonment.
The officers of ED also need to record reasons for the attachment of the property and usage of their power and the reasons need to be sound and rationale.
Although the powers of ED remain an issue of contention, they are necessary for fulfilling the objective of the act and India’s international obligation as India is a member of the FATF task force and have also signed international convention such as Palermo convention which seeks to curb money laundering.
Recognizing money laundering as a crime detrimental to society, proponents argue that law enforcement agencies, including the ED, should be endowed with necessary powers. This is deemed essential to ensure that individuals engaging in money laundering face appropriate consequences and that justice is delivered. The argument contends that the societal impact of money laundering necessitates robust measures to deter and penalize offenders effectively.
In summary, while the extension of powers to the ED remains a contentious issue, proponents emphasize the justifiability of these powers within the context of the Act’s objectives, legal constraints, and India’s international obligations in combating money laundering. The balancing act between empowering law enforcement and safeguarding individual rights is essential in addressing the complex challenges posed by financial crimes.
Conclusion
This article delves into the Enforcement Directorate’s (ED) controversial exercise of authority under the Prevention of Money Laundering Act (PMLA), citing instances like the ‘Newsclick’ controversy and Supreme Court inquiries during Manish Sisodia’s bail hearing. The analysis explores the jurisdiction of the ED, referencing the Vijay Madanlal case and the Delhi High Court’s position in the Pankaj Bansal case. Amendments in the Finance Act, 2019, expanded the PMLA’s scope. The Supreme Court’s decision to reassess the Vijay Madanlal case reflects ongoing legal discourse, emphasizing the need for nuanced evaluation. Despite debates, proponents argue that the ED’s powers are necessary for the Act’s objectives and India’s international obligations to combat money laundering, ensuring effective deterrence and punishment for offenders.
This article has been authored by Gurman Narula. The author is a second year law student at National Law Institute University, Bhopal.
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