The Enforcement Directorate (ED) has emerged as a formidable law enforcement agency in the past few years. Reports suggest that the number of cases registered and searches carried have risen exponentially since 2014. Between 2004-2014, the ED carried out 112 searches and prosecuted only 104 complaints. However, between 2014-2022, the ED carried out 2,974 searches and attached property worth more than Rs 95,000 crore. In their petition before the Supreme Court, 14 political parties contended that 95% of these cases were registered against members of the opposition parties.
The legality of the ED’s actions and manner of functioning has come up before the Supreme Court on several occasions. The Supreme Court’s recent refusal to interfere in the appeal filed by Senthil Balaji, a minister in Tamil Nadu, who is accused of money laundering and the Court’s decision on the ED Director’s illegal tenure, has cast the spotlight on ED’s powers and propriety in functioning. The vast powers conferred by the Prevention of Money Laundering Act, 2002 (PML Act) and bolstered by the Supreme Court warrant analysis and discussion.
The ED was initially established as the Enforcement Unit in 1956 to deal with violations of the erstwhile Foreign Exchange Regulation Act, 1947. The notification of the PML Act in 2005 vitalised the ED and revamped the government’s approach towards prosecuting economic offences. At present, the ED enforces the PML Act, Foreign Exchange Management Act, 1999 and the Fugitive Economic Offenders Act, 2018.
The PML Act primarily criminalises the offence of ‘money laundering’, which has been defined to include concealment, possession, acquisition or use of ‘proceeds of crime’. Projecting or claiming proceeds of crime as untainted property too, amounts to money laundering. It is not necessary that the accused should have actively committed any of these acts as even knowingly assisting, directly attempting or indirectly attempting any of these actions amount to money laundering.
Proceeds of crime refers to ‘property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property’. A number of offences under the Indian Penal Code and special laws such as the Prevention of Corruption Act, 1988, Narcotic Drugs and Psychotropic Substances Act, 1985, Wildlife (Protection) Act, 1972, Securities and Exchange Board of India Act, 1992, Unlawful Activities (Prevention) Act, 1967, etc. have been enlisted as ‘scheduled offences’.
Section 19 of the PML Act empowers the ED’s Director, Deputy Director, Assistant Director or any officer authorised by the Union government to arrest a person who they believe is guilty of an offence under the Act. The only preconditions are materials in their possession and written reasons that lead them to believe that the accused is guilty. The arrested person is required to be produced before the Special Court or the Magistrate, and the ED may seek the accused’s custody or urge the court to detain the accused in judicial custody (jail).
Ordinarily, in cases related to offences punishable with imprisonment of seven years or lesser, Section 41A of the Code of Criminal Procedure, 1973, and the Supreme Court’s directions require the investigating agency to issue a notice to the accused directing their appearance for interrogation instead of arresting them straightaway. This is to ensure that citizens are not unnecessarily arrested and harassed except when there are genuine apprehensions about the destruction of evidence, witnesses being influenced, the accused being a flight risk, etc.
Under the PML Act, the offence of money laundering attracts imprisonment, which may range from three years to seven years ordinarily and ten years in some cases. However, in its recent judgment in Senthil Balaji’s case, the Supreme Court held that the benefit of a notice under Section 41A of the Code would not be available to a person accused of an offence under the PML Act. The Court said that the PML Act was enacted to deal with heinous crimes like money laundering, and the requirement to comply with Section 41A would defeat the investigation. The Court also held that the provisions of the Code would apply only when they are consistent with the PML Act, and as the PML Act contains a separate provision on the power to arrest, Section 41A would have no application.
This position is specious as the police or any other investigative agency probing the scheduled offence (the predicate offence) may be obligated to follow Section 41A, but the ED, which merely investigates the money laundering aspect is exempted from the rigour of Section 41A. For instance, a police officer investigating the scheduled offence of cheating or receiving stolen property is bound to follow Section 41A while the ED’s officer who is concerned only with the proceeds of crime has no obligation to follow Section 41A.
The restriction on the Court’s powers to grant bail is another reason why proceedings under the PML Act are dreaded. Though the accused may obtain bail easily in the case related to the scheduled offence, they cannot be released on bail in the money laundering case unless the court is satisfied that there are reasonable grounds to believe that the accused is not guilty of money laundering. Though a smaller bench of the Supreme Court had held this condition to be unconstitutional, the Parliament reintroduced it through the Finance Act, 2018 and the same was upheld by the Supreme Court in 2022. Therefore, even if the accused is not likely to abscond, destroy evidence or threaten witnesses, the court may refuse to grant bail and authorise pre-trial detention.
The accused’s ability to establish the absence of reasonable grounds to believe their guilt and secure bail is severely hampered as the Supreme Court in Vijay Madanlal Choudhary’s case (2022) has held that the ED is under no obligation to share the Enforcement Case Information Report (ECIR) with the accused against whom it has been filed. The Court held that it could not be equated with an FIR and was an ‘internal document’ of the ED. The Court further held that it is sufficient if the ED merely informs the accused about the reasons for arresting them.
The ED received a shot in the arm when the SC held in the same case that ED officers were not ‘police officers’ for the purpose of protection from self-incrimination as enshrined in Article 20(3) of the Constitution of India. The Court specifically held that the constitutional right against self-incrimination has no application when a person is summoned by the ED in connection with an investigation. As a result, confessions recorded by the ED can be detrimental to the accused unlike confessions recorded by the police officers, despite the ED’s power to arrest and ensure detention in jail.
The steady augmentation of the ED’s powers, judicial deference and a facile discourse on economic offences have enhanced citizens’ vulnerability and facilitated easy incarceration. While this piece does not discuss the ED’s powers to attach property as it requires a separate, nuanced analysis, such powers have been instrumental in rendering the accused helpless even before their guilt is determined. The Supreme Court’s willingness to review its judgement in Vijay Madanlal Choudhary may not be fruitful unless the Court consistently refuses to be deferential to the ED and instead heightens the level of scrutiny of the propriety and legality of the ED’s actions.
Rahul Machaiah is a lawyer from Karnataka. He holds an LLM in Law & Development from Azim Premji University. Views expressed are the author’s own.