Unlimited powers of Enforcement Directorate in money laundering cases: An analysis of Supreme Court judgment | The Financial Express

Unlimited powers of Enforcement Directorate in money laundering cases: An analysis of Supreme Court judgment

The Supreme Court has recently, in the decision of Vijay Madanlal Choudhary, has set to rest several key issues involving the powers of the Enforcement Directorate under the Prevention of Money Laundering Act

Unlimited powers of Enforcement Directorate in money laundering cases: An analysis of Supreme Court judgment
India’s judiciary has always leaned towards procedural safeguards, rather than away from them

By Inderpal Singh, Maneet Pal Singh

The Supreme Court has recently, in the decision of Vijay Madanlal Choudhary, has set to rest several key issues involving the powers of the Enforcement Directorate under the Prevention of Money Laundering Act, 2002 (PMLA). ED is an investigative agency, yet it has still not been deemed as a ‘police agency’. This non-classification as a police agency, makes the confessions made before ED admissible in courts. It was argued that this violates the basic tenets of the Constitution in the form of Article 20(3) and hence, is unconstitutional. Another key issue discussed in the judgment was the lack of transparency while filing the Enforcement Case Information Report (ECIR). Police are typically required to supply the copy of FIR to the accused. However, no such requirement is mandated on the ED under the PMLA. Hence, the accused, whose confessions are admissible in court against him, does not even know the offence for which he is being prosecuted. 

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Another issue that was argued upon, was the ED’s power to attach the assets of the accused under PMLA, if it is of the opinion that such assets constitute proceeds of crime. This issue assumes significance as the property once attached, based on the opinion of the ED, subject to confirmation by the Adjudicating Authority, remains attached till the conclusion of the trial. The burden to prove that the property is not a proceeds of the crime, lies on the accused, rather than on the ED. Such a provision gives wide discretionary powers to the ED to attach properties and assets of those accused under PMLA and may be used as a tool to harass. Moreover, the ED does not have to give any reasons in writing before attaching the property. 

One of the foremost issues that found mention in this judgment was that of bail under PMLA. A twin-test has been laid down for those attempting to secure bail under PMLA. The accused has to prove that a) prima facie no offence of money laundering is made out against him and b) that if let out on bail, he will not engage in any offence of money laundering. Not having a copy of the ECIR, the accused has a tough task to prove the aforementioned twin test. This judgment answered all the issues outlined above in the affirmative. Members of the bar and social activists have severely critiqued this judgment as being violative of human rights and constitutional principles. 

Analysis and Implications

This decision can be analyzed in a two-pronged manner. On the one hand, the judgment by giving wide powers to the ED has done away with procedural complexities in money laundering issues, on the other hand, such wide discretionary powers, may also become a tool of exploitation in the hand of the ED. 

Firstly, the Supreme Court has held that ED is not police and hence, unlike as under police, confessions given to ED would be admissible. If this is the case, then ED may resort to coercive measures to draw out a confession from the accused that can then be used against the accused in a court of law. This would be violative of human rights as well as may lead to false convictions. Moreover, this is also violative of the principle of self-incrimination, as embodied in the Indian Constitution. 

Secondly, there is no need to supply the accused/arrested with a copy of the ECIR and only disclosing reasons for arrest is sufficient. This holding, again vests the ED with wide powers to arrest individuals without informing them of the exact charges against them. Moreover, the court did not specify the nature of disclosure. The reasons for arrest could be vague and the accused will not have a right to examine the exact charges against him.

The twin-test laid down for securing bail trumps the principle of bail is the rule and jail is the exception. This test allows an accused to get bail only if the Court is satisfied on a prima facie basis that the accused is not guilty and that the accused would not engage in any criminal conduct while on bail. 

While from a human rights perspective, the ED decision has far-reaching consequences, it has also opened an easier mechanism for proceeds and properties amassed due to money laundering to be attached. The Supreme Court held the validity of section 5 that gives discretionary powers to the ED to attach the property of the accused. 

The upholding of the search and seizure powers of the ED under Section 17 is also a positive step as sudden search and seizure operations would serve the purpose of finding the proceeds of money laundering better. The objective of the ED inter alia, is to prevent money laundering. In order to achieve this objective, some far-reaching powers are essential. However, these powers should be used only for legitimate purposes and checks and balances should be maintained to prevent the misuse of these powers.

Verdict and Arguments

The petitioners argued that, the extraordinary powers of the ED include the reverse burden placed on the accused to prove innocence, the rigorous conditions for granting bail, and the lack of a procedure for initiating an investigation and summoning, which is contrary to the protection of life and liberty guaranteed by Article 21 of the Indian Constitution.

In addition to contesting the different provisions of the statute, the petitions noted that since 2011, 1700 searches and 1569 targeted investigations had resulted in only 9 convictions by ED officers. The court was further informed that the PMLA Appellate Tribunal is understaffed and that on February 2, 2022, only one of the five members of the person committee was actually working. This poses a significant obstacle to obtaining redressal for unlawful property attachments conducted by ED Officers.

It was argued that the PMLA’s process is harsh because it contravenes both the rights guaranteed by Part III of the Indian Constitution, including Articles 14, 20, and 21 and the fundamental principles of the criminal justice system.

The government defended the law by stating that it is a special statute with distinctive procedures and safeguards. Additionally, it was argued that a strict regime should exist to deal with money laundering because it poses a severe threat to the nation’s economic stability.

The Supreme Court after hearing both the Parties held that Enforcement Directorate’s officials are not ‘police officials’ and thus recording statements of the accused by the central agency is not hit by the fundamental right against self-incrimination. Further the Enforcement Case Information Report is an internal document of the central agencies and it can, in no case, be equated with First Information Report filed by police officials, and thus the provisions of Code of Criminal Procedure are not applicable to Enforcement Directorate. Thus the court upheld the power of ED to take self-incriminatory statements and stated that ED is not obliged by the provisions of CrPC. 

The court in this case also clarified that the supply of ECIR to the accused is not mandatory, only the disclosure of reasons during arrest is sufficient. A special court is empowered to look into the relevant records presented by the Enforcement Directorate when the arrested person is produced to it. This will answer the need for the person’s continued detention in connection with the alleged offence of money laundering.

Section 5 and 8(4) of the Prevention of Money Laundering Act, 2002 empowers the Enforcement Directorate with a wide discretionary power to attach the property of the accused. These provisions were challenged as being arbitrary and violate the safeguards that are meant to be given to the accused. The court upheld Section 5 and stated that this section provides for a balancing arrangement in order to secure the interest of the person and to ensure that proceeds of crime are available to be dealt with as per the provisions of the act.

Section 17 of the Prevention of Money Laundering Act, 2002 empowers the ED with powers to enter, search and seize the suspected property without judicial permission. Court upheld Section 17 while stating that such special powers are necessary to ensure that the proceeds are available to be dealt as per the provisions of the act.

Conclusion

India’s judiciary has always leaned towards procedural safeguards, rather than away from them. In the decision of Selvi v. State of Karnataka (2010), it was stated by the Supreme Court that, ““it must be reiterated that Indian law incorporates the “rule against adverse inferences from silence” which is operative at the trial stage. As mentioned earlier, this position is embodied in a conjunctive reading of Article 20(3) of the Constitution and Sections 161(2), 313(3) and proviso (b) of Section 315(1) CrPC.  However, the recent judgment has led to path-breaking developments, wherein the ED is now bestowed with discretionary, unfettered powers. These powers are not limited by the Constitution, nor are they restrained by the procedural laws of the country. The intent behind bestowing such overarching powers is to mitigate corruption in the country. If these powers are implemented in the right manner, they may achieve their goal, but the difficult task ahead is to ensure that they are not misused and do not become a political tool in the hands of the ruling parties.

(Inderpal Singh, Senior Partner and Maneet Pal Singh, Partner, I.P. Pasricha & Co. Views expressed are the authors’ own.)

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