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ED has powers to seize, search, arrest: Top court
In its judgment, the court also suggested that ED may consider putting out in public domain a template of sorts for people to understand the course of action usually undertaken by the agency in different case scenarios, and the redressal mechanism available to suspects and accused.
The Supreme Court on Wednesday affirmed the sweeping powers given to the Enforcement Directorate (ED) under the 2002 Prevention of Money Laundering Act (PMLA) for summoning individuals, making arrests, conducting raids and attaching properties of the suspects, saying that law enforcement agencies must be armed with an effective mechanism to safeguard the nation’s wealth from dreaded criminals.
However, even as it upheld various contentious PMLA provisions, the top court clarified that while ED can go ahead with provisional attachments, arrests, search and seizures without waiting for registration of a formal first information report (FIR) by police, it should inform the jurisdictional police for lodging the main FIR on the basis of which the predicate offence of money laundering could be investigated by ED; that the prosecution of an accused under PMLA would require registration of a base FIR; and that if the base FIR is quashed or the accused is exonerated of the charges, ED cannot continue its probe under PMLA. The clarification is expected to result in the closure of some ED cases, mostly related to the corporate sector.
Still, by dismissing the challenge to non-supply of Enforcement Case Information Report (ECIR), which is equivalent of an FIR in an ordinary criminal case, and upholding the stringent conditions of bail as well as the burden of reverse proof in PMLA cases , the bench, led by justice AM Khanwilkar has essentially endorsed the powers of ED and the provisions of the law.
The court’s verdict comes at a time when a spate of recent arrests, raids and actions by ED, including the ongoing questioning of Congress President Sonia Gandhi in connection with a money laundering case linked to the National Herald newspaper, has sparked a major political controversy with the Opposition accusing the government of misusing the agency to target their leaders. Gandhi on Wednesday appeared before ED for the third round of questioning in the case.
“The @dir_ed is above & beyond”, Karti Chidambaram, a petitioner in the case the court ruled on, tweeted soon after the verdict. Underlining that the Supreme Court has upheld PMLA and jurisdiction of ED, Bharatiya Janata Party chief JP Nadda told reporters outside Parliament: “The law is taking its own course and we all must respect the law of the land.”
In its 545-page judgment, the bench, which also comprised justices Dinesh Maheshwari and CT Ravi Kumar, upheld the constitutional validity of a slew of rigorous PMLA provisions, which were under challenge in a batch of over 200 petitions filed by several persons facing PMLA proceedings, including Congress MP Karti Chidambaram and former J&K chief minister Mehbooba Mufti. The pleas alleged that the law gives unbridled and arbitrary powers to ED in the teeth of constitutional guarantees of right to liberty, property and right against self-incrimination.
Rejecting these contentions, the bench emphasised that it is “imperative for the State to frame such a stringent law which not only punishes the offender proportionately but also helps in preventing the offence and creating a deterrent effect,” by grouping these offenders as a separate class from ordinary criminals. As per the central government’s submissions in the court, the quantum of proceeds of crime involved in the bunch of PMLA cases before the court amounted to ₹67,104 crore.
“Money-laundering is one of the heinous crimes, which not only affects the social and economic fabric of the nation, but also tends to promote other heinous offences, such as terrorism, offences related to NDPS Act, etc. It is a proven fact that international criminal network that supports home grown extremist groups relies on transfer of unaccounted money across nation States,” the court said.
Disposing of the clutch of cases, the court extended the interim bail and protection from arrest for the petitioners by another four weeks, and asked them to move appropriate courts for suitable relief.Apart from Chidambaram and Mufti, the petitioners include former Ranbaxy vice-chairman Shivinder Mohan Singh, Zoom Developer’s promoter Vijay M Choudhary, Delhi businessman Gagan Dhawan, former promoter and managing director of Bhushan Steel Neeraj Singal and alleged hawala operator Farooq Mohammed Hanif Sheikh.
Powers of ED
Some of the chief provisions backed by the top court in its judgment include ED’s extensive powers to summon individuals for questioning, search of a person and seizure of evidence, conducting raids without the need of obtaining a prior nod from a court, emergency attachment of properties even in absence of a pre-registered criminal case, and making arrests without there being a formal complaint. At the same time, the court underscored that unless the property has been derived or obtained as a result of criminal activity relating to an offence registered under a base FIR, ED cannot step in.
Affirming ED’s powers, the court noted that there are enough safeguards available under PMLA, authorising only high-ranking officers in the agency to grant approvals for raids or attachment of properties while recording reasons to do so. These reasons are forwarded to the adjudicating authority under the law, which is headed by a person qualified for appointment as a district judge, noted the court, adding the procedure thus entails fairness, transparency and accountability.
“The provisions in 2002 Act are not only to investigate into the offence of money-laundering but more importantly to prevent money-laundering and to provide for confiscation of property related to money laundering and matters connected therewith and incidental thereto,” emphasised the bench.
It accepted the submission of the Union government and ED regarding the expansive definition of money laundering, punishable under PMLA. “The offence, as defined, captures every process and activity in dealing with the proceeds of crime, directly or indirectly, and not limited to the happening of the final act of integration of tainted property in the formal economy to constitute an act of money laundering,” held the bench, clarifying possessing, concealing or dealing with the proceeds of crime in any manner will attract punishment under PMLA.
Dismissing the challenge to non-supply of ECIR, which is equivalent of an FIR in an ordinary criminal case, the court pointed out that ECIR is an internal document of the agency. Since there is no legal requirement of ED to compulsorily register an ECIR in a crime like an FIR by police, the court said, no directive to share a copy of ECIR with the accused can be issued. So long as the person has been informed about the grounds of his arrest, it added, there is sufficient compliance of the constitutional mandate on rights of an arrested person under Article 22(1). The bench also noted that the person has to be produced before a court within 24 hours of arrest and that court could look into the relevant records regarding charges of money-laundering.
The top court also held that ED officers cannot be considered as “police” officers because their roles are distinct under the PMLA. It means, the bench added, if an ED officer records an incriminating statement of a witness, suspect or accused, such a statement can become a piece of valid evidence and cannot be thrown out on the ground of being self-incriminatory and thus, violative of Article 20(3) (right against self-incrimination).
Stringent bail conditions
The stringent conditions of bail as well as the burden of reverse proof in PMLA cases were also upheld by the bench, stating that the provisions are in line with the legislative scheme and the objective sought to be achieved by the 2002 Act, which seeks to combat the menace of money laundering.
The two conditions for bail in such cases include an opportunity to a prosecutor for opposing the bail, besides the prima facie satisfaction of a court on the presence of reasonable grounds that the accused is not guilty of money-laundering and that he is not likely to commit any offence while on bail. Section 24, on the other hand, invoked the burden of reverse proof, stating that a court will presume an accused to be involved in money laundering unless proved contrary. This is in contrast to the general principle of presumption of innocence of an accused until proven guilty, reversing the onus.
Commenting on pre-conviction detention under PMLA, the court clarified that Section 436A of the Criminal Procedure Code (CrPC) would be applicable in money laundering cases too, entitling an accused to seek bail if he has already served half of the maximum punishment prescribed under the law. “If a person is detained for a period extending up to one-half of the maximum period of imprisonment specified by law and is still facing trial, it is nothing short of failure of the State in upholding the constitutional rights of the citizens, including person accused of an offence,” said the bench.
Some of the petitions had also questioned the passage of various amendments in PMLA as money bills. The bench, however, refrained from adjudicating this issue, referring it to a seven-judge bench where ancillary issues relating to the passage of a law as money bill is already pending. Acknowledging that various amendments in PMLA would become ineffective if the larger bench decides against the Union government, the court said that it is necessary to decide the issues for the present in the wake of the deluge of challenges to the existing legal regime.
Solicitor general Tushar Mehta and additional solicitor general SV Raju appeared for the Centre and ED in the matter. A battery of senior lawyers, including Kapil Sibal, AM Singhvi, Mukul Rohatgi, Sidharth Luthra, Amit Desai, Mahesh Jethmalani and Menaka Guruswami, represented the petitioners.
The menace of money laundering
In its judgment, the Supreme Court also took on record India’s commitments before the United Nations and its obligations under international conventions. “It is common experience world over that money laundering can be a threat to the good functioning of a financial system. However, it is also the most suitable mode for the criminals to deal in such money. It is the means of livelihood of drug dealers, terrorist, white collar criminals and so on. Tainted money breeds discontent in any society and in turn leads to more crime and civil unrest. Thus, the onus on the Government and the people to identify and seize such money is heavy,” stressed the bench.
Article 39 of the Constitution mandates the State to prevent concentration of wealth, said the court, adding that it becomes imperative for the State to make such laws which not only ensure that the unaccounted money is infused back in the economic system of the country, but also prevent any activity which damages the economic fabric of the nation.
“It cannot be gainsaid that social and economic offences stand on a graver footing as they not only involve an individual direct victim, but harm the society as a whole...The offence of money-laundering has been regarded as an aggravated form of crime world over. It is, therefore, a separate class of offence requiring effective and stringent measures to combat the menace of money laundering,” maintained the court in its judgment.
It added: “Notwithstanding the existing dispensation to deal with proceeds of crime, the Parliament enacted the Act as a result of international commitment to sternly deal with the menace of money-laundering of proceeds of crime having transnational consequences and on the financial systems of the countries...If there are any proactive steps towards such a cause, we cannot but facilitate the good steps.”
“If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the court of competent jurisdiction, there can be no offence of money-laundering against him or any one claiming such property being the property linked to stated scheduled offence through him,” held a bench led by justice AM Khanwilkar , making an important declaration in law that may provide succour to several corporate entities that are constrained to face the brunt of PMLA proceedings owing to illegalities conducted by the previous management.
In its judgment, the court also suggested that ED may consider putting out in public domain a template of sorts for people to understand the course of action usually undertaken by the agency in different case scenarios, and the redressal mechanism available to suspects and accused.
It further implored the government to fill up vacancies in the PMLA appellate tribunal so as to ascertain quick determination of disputes pertaining to attachment orders and taking over possession of the property so attached.
