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A Delve Into ED's Power To Arrest In Money-Laundering Cases

The Prologue:
The Directorate of Enforcement or the Enforcement Directorate ("ED") is a multi-disciplinary organization primarily mandated with investigation of offence of money-laundering cases and violations of foreign exchange regulations and is oftentimes crowned as India's premier law enforcement and economic intelligence agency.

As a part of the Department of Revenue, Ministry of Finance, Government of India, ED focuses on investigating and prosecuting cases related to foreign exchange violations, money-laundering economic offenses, curb the generation and circulation of black money and to ensure compliance with the laws concerning foreign exchange and prevention of money laundering.

ED oftenly remains on the top of news headlines for carrying out robust search operations alleged cases of money-laundering linked with businesspersons / corporations / politicians / ministers / bureaucrats and their associates.

Originally ED was formed as an "enforcement unit" within the Department of Economic Affairs on 1 May 1956 for handling Exchange Control Laws violations under the Foreign Exchange Regulation Act, 1947. In 1957, the unit renamed as the Enforcement Directorate.

The powers of ED stem from major economic legislations namely the Foreign Exchange Management Act, 1999 (FEMA), the Prevention of Money Laundering Act, 2002 (PMLA), and the Fugitive Economic Offenders Act, 2018 (FEOA) of which it is also responsible for enforcement.

This article attempts to explore the legal powers of ED on arrest in cases relating to money-laundering which are primarily dealt with in the PMLA.

From the law:
The Section 19 of the PMLA grants power to arrest any Person, who has been guilty of an offence punishable under this Act, to Director, Deputy Director, Assistant Director or any other officer authorised by the Central Government.

The only condition being there should be some material in his possession giving reason to believe commitment of offence (reason to be recorded in writing).

Others Procedural Requirements Being:
  • Informing him the grounds for such arrest.
  • Immediately after the arrest forwarding a copy of order along with the material in possession (providing reason to believe) to the Adjudicating Authority in a sealed envelope.
  • Taking the every person arrested to Special Court or Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having Jurisdiction within 24 hours (excluding travel time from place of arrest to taking before above mentioned Court/Magistrate).
From The Pronouncements:
In Moin Akhtar Qureshi Petitioner v. UOI & Ors., the Delhi High Court held:
The Section 19 of the PMLA uses the expression "informed of the grounds of such arrest" - as used in Article 22(1), and does not use the expression "communicate the grounds of such arrest". The Scheme of Section 19 engrafts an additional safeguard against misuse of the power of arrest by the Competent Authority, by stipulating that the Competent Authority shall "immediately after arrest of such person" forward a copy of the order of arrest, along with the material in his possession - on the basis of which the reasonable belief is formed that the person is guilty of an offence punishable under the Act, in a sealed envelope to the Adjudicating Authority, which the Adjudicating Authority is obliged to keep under his custody.

The obligation cast on the Competent Authority under Section 19(1) Is to inform the arrestee, "as soon as may be" of the grounds of such arrest. Section 19(1) does not oblige the Competent Authority to inform/serve the order of arrest, or the grounds for such arrest to the arrestee simultaneously with his arrest.

However subsequently in Pankaj Bansal v. Union Of India, the Supreme Court held:
To give true meaning and purpose to the constitutional and the statutory mandate of Section 19(1) of the PMLA of informing the arrested person of the grounds of arrest, it would be necessary, henceforth, that a copy of such written grounds of arrest is furnished to the arrested person as a matter of course and without exception and merely reading out or permitted reading of the grounds of arrest and leaving it at that as form of communication is not found to be adequate to fulfil compliance with the mandate of Article 22(1) of the Constitution and Section 19(1) of the Act of 2002.

In V. Senthil Balaji v. The State Represented By Deputy Director And Ors., the Supreme Court held:
  1. When an arrestee is forwarded to the jurisdictional Magistrate under Section 19(3) of the PMLA, 2002 no writ of Habeas Corpus would lie and any plea of illegal arrest is to be made before such Magistrate since custody becomes judicial.
  2. Any non-compliance of the mandate of Section 19 of the PMLA, 2002 would enure to the benefit of the person arrested. For such non-compliance, the Competent Court shall have the power to initiate action under Section 62 of the PMLA, 2002.
In Vijay Madanlal Choudhary v. Union Of India, the Hon'ble Supreme Court upheld:
The Constitutional validity of Section 19 of the 2002 Act and on the other hand held that such a provision has reasonable nexus with the purposes and objects sought to be achieved by the Prevention of Money Laundering Act, 2002 and confiscation of proceeds of crime involved in money-laundering, including to prosecute persons involved in the process or activity connected with the proceeds of crime so as to ensure that the proceeds of crime are not dealt with in any manner which may result in frustrating any proceedings relating to confiscation thereof.

From the Conclusion:
The PMLA is a stringent law enacted with object to prevent money-money-laundering, confiscation of property derived from, or involved in money-laundering and for matters connected therewith or incidental thereto.

And to implement the Political Declaration and Global Programme of Action which was adopted by the General Assembly of the United Nations in 1990 and the Political Declaration adopted by the Special Session of the United Nations General Assembly 1998 which calls upon the member states to adopt national money-laundering legislation and programme.

Therefore considering the international developments and global push on strong money-laundering legislations it has been one of the strictly followed legislations, but the same has brought many a provisions particularly the arrest, confiscation, search and summon being challenged as arbitrary and unconstitutional many a times before the courts.

However, the court's have also been reluctant in giving liberal interpretation to these provisions and the Supreme Court in Vijay Madanlal Choudhary v. Union Of India held that "to give effect to the international standards of preventing money-laundering prescribed by FATF and other international treaties, stringent bail conditions are necessary and the Legislature has provided enough safeguards under Section 19 so as to balance the rights of the accused and to protect the interest of the investigation as well".

The above legal position clearly depicts the strict view taken in the Arrests in money-laundering cases on the other hand adequate checks and limitation have been provided in the Section 19 itself which requires that the arrest can only be made by Director, Deputy/Assistant Director or other person authorised by Central Government having a material in possession to believe the commitment to money-laundering.

However, one of the question remaining judicially unanswered in context of above provision is that whether the warrant of arrest is required before arresting a person in case of money-laundering however Solicitor General Tushar Mehta in one of the cases argued that ED is not required to follow the ordinary rules for criminal Investigation as in the Code of Criminal Procedure, 1973 and that all money laundering offences are cognizable - the Enforcement Directorate does not require judicial permission in the form of a warrant to make an arrest.

Written By: Manish Dulani, A Rank Holder Company Secretary And 2nd Year LL.B. Student At University Law College - 2, Raj. University 

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