The Prevention of Money Laundering Act, 2002 (PMLA) forms the core of the legal framework put in place by India to combat money laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005. Director, FIU-IND and Director (Enforcement) have been conferred with exclusive and concurrent powers under relevant sections of the Act to implement the provisions of the Act.

The PMLA and rules notified thereunder impose obligation on banking companies, financial institutions, and intermediaries and persons carrying on a designated business or profession, to verify identity of clients, maintain records and furnish information to FIU-IND. PMLA is an act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto.

Section 50 of the Prevention of Money Laundering Act (PMLA), 2002, details the powers of authorities in issuing summons, producing documents, and giving evidence. It equates the Director's powers to those of a civil court under the Code of Civil Procedure, 1908, for matters like discovery and inspection, enforcing attendance, compelling production of documents, and issuing commissions. These powers are for section 13 of the PMLA. Section 50(2) empowers the Director and other officers to summon any person during any investigation or proceedings under the PMLA. Rule 2(p) and Rule 11 of PML Rules, 2005 further specify these powers. Section 50(3) mandates that all summoned persons must attend in person or through authorized agents, state the truth upon examination, and produce required documents. Section 63(2) imposes a penalty for non-compliance.

Section 50(4) deems every proceeding under section 50(2) and section 50(3) as a judicial proceeding as per sections 193 and 228 of the Indian Penal Code, 1860. Section 50(5) allows any officer referred to in section 50(2) to impound and retain any records produced before him in any proceedings under Act 15 of 2003. There are safeguards in place to prevent misuse of this power.

Powers under Section 50 of the PMLA are equivalent to the powers of a civil court
The Supreme Court affirmed in the case of Vijay Madanlal Chaudhary v. Union of India [LSI-559-SC-2022(NDEL)], that the powers of ED under Section 50 of PMLA, 2002 are equivalent to those of a civil court under the Code of Civil Procedure, 1908. The Supreme Court, after observing that "the process envisaged by Section 50 of the 2002 Act is in the nature of an inquiry against the proceeds of crime and is not "investigation" in the strict sense of the term for initiating prosecution; and the Authorities under the 2002 Act (referred to in Section 48), are not police officers as such," rejected the challenge to the constitutionality of Section 50 of PMLA.

The same view was echoed by the Delhi High Court in Satyendar Kumar Jain v. Directorate of Enforcement [LSI-299-HC-2023(DEL)] by holding that Section 50(1) of the PMLA, 2002 confers certain powers upon the Director for the purpose of Section 13 of the PMLA as are vested in a civil court under the Civil Procedure Code, 1908 while trying a suit in respect of the matters enumerated therein.

Section 50(2) confers powers upon the Director, Additional Director, Joint Director, Deputy Director or Assistant Director to summon any person whose attendance they consider necessary whether to give evidence or to produce any records during the course of any investigation or proceeding under this Act. Section 50(3) of the PMLA provides that all such summoned persons shall be bound to attend in person or through an authorised officer and shall further be bound to state the truth upon any subject respecting which they are examined or make statements and produce such documents as may be required. Section 50(4) of PMLA provides that proceedings under sub-Section (2) and (3) shall be deemed to be a judicial proceeding with the meaning of Section 193 and Section 228 of the Penal Code, 1860.

The Andhra Pradesh High Court in Dalmia Cement (Bharat) Limited v. Assistant Director of Enforcement Directorate, while dealing with the purpose of investigation under Section 50(2) noted that it is essentially for collecting evidence with regard to the involvement of a person or about existence of certain facts concerning proceeds of crime or process or activity connected with proceeds of crime, such inquiry or investigation could be commenced based on information to be recorded in the internal document maintained by the authority authorised also described as ECIR.

Person summoned under Section 50 cannot be treated as an accused.

The Madras High Court in B. Narayanaswamy v. Deputy Director, observed that at the time of making an enquiry under Sections 50(2) and 50(3) of the said Act, the persons so summoned unless are found to have been involved in the crime of Money Laundering, cannot be treated as an accused at the stage of enquiry itself.

Section 50 of PMLA excludes power to arrest
Recently again, the same question arose before the Delhi High Court in Ashish Mittal v. Directorate Of Enforcement & Anr. [LSI-969-HC-2023(DEL)], wherein the Petitioner, on receiving summons under Section 50(2) and 50(3) of the PMLA approached the High Court seeking quashing of an ECIR as the Petitioner apprehended that he will be illegally detained/arrested by the ED.

While rejecting the said Petition, the Delhi High Court reiterated that the power of arrest under Section 19 of the PMLA is not untrammelled. The Court observed that authorities do not have the power to arrest on their whims and fancies. There is a three-fold requirement that must be complied with before arresting a person: Firstly, the Director must entertain a reasonable belief that the person arrested is guilty of an offence under the PMLA and not under any other enactment; Secondly, the reasons for such belief must be recorded in writing; and Thirdly, such belief must be based on material that is in the Director's possession.

The Delhi High Court further observed that Section 50 of the PMLA confers upon specified officers of the ED the powers vested in a civil court trying a suit, including the power to enforce the attendance of any person for recording statements on oath, with a mandate that any person so summoned shall be bound to attend, to answer and make statements truthfully; to compel discovery, inspection and production of documents and records; and to impound and retain records, by giving reasons in writing and underlined the fact that the power to arrest is conspicuously absent in Section 50 of the PMLA. The Court further observed that though Section 19 of the PMLA empowers designated officers of the ED to arrest any person, subject to satisfying the conditions mentioned in that provision, it is clear that the power to arrest does not reside in Section 50 nor does it arise as a natural corollary of Summons issued under Section 50.

The Supreme Court in Pankaj Bansal v. Union of India [LSI-911-SC-2023(NDEL)], the Supreme Court has expressed in clear terms that the failure of individuals to respond to the questions put to them by the ED would not be sufficient in itself for the Investigating Officer to opine that they were liable to be arrested under Section 19, as that provision specifically requires him to find reason to believe that they were guilty of an offence under the Act of 2002. Mere non-cooperation of a witness in response to the summons issued under Section 50 of the Act of 2002 would not be enough to render him/her liable to be arrested under Section 19.

In conclusion, the recent rulings of the Delhi High Court and the Supreme Court underscore the importance of due process and adherence to legal provisions in law enforcement activities. Section 50 of the PMLA does not inherently grant the power to arrest in case of non-cooperation and would not be sufficient grounds for arrest under Section 19 as Section 50 of PMLA excludes the power to arrest.

Confessional Statement Of Co-Accused Under Section 50 Of PMLA Not Substantive Piece Of Evidence, Can Be Used Only For Corroboration: Delhi High Court

In the case of SANJAY JAIN v. ENFORCEMENT DIRECTORATE, [2024 LiveLaw (Del) 285] Pronounced on: 07.03.2024 The Delhi High Court has said that the confessional statement of a co-accused under Section 50 of Prevention of Money-Laundering Act, 2002, is not a substantive piece of evidence and can be used only for corroboration in support of other evidence to lend assurance to the Court in arriving at a conclusion of guilt.

The court made the observations while granting bail to Sanjay Jain, an accused in a money laundering case.

The case was registered by Enforcement Directorate (ED) on the basis of CBI FIR against the CEO and MD of Indian Farmers Fertilizer Co-operative (IFFCO) Ltd and various others for alleged corruption and causing loss to the exchequer by importing fertilizer raw material at inflated prices. ED alleged that Jain received the proceeds of crime through two routes.

Contentions raised against Section 50 of the PML Act
The validity of Section 50 was challenged before the Supreme Court in this case. It was averred that the provision violated Articles 20(3) and 21 of the Indian Constitution. It was also argued before the Court that the provision allowed the officer under the Act to summon any person and record his statement during the investigation process.

The Court explained that the summons issued by the authority under Section 50 is related to the inquiry about the proceeds of crime. The Court said that in respect of such action, the designated officers could summon any person for information collection and for collection of evidence presented before the Adjudicating authority. The Court held that initiating prosecution against the notice is not mandatory.
The Court expressed that the power of officers under this Act, which is couched as investigation in a real sense, pertains to undertaking inquiry to ascertain relevant facts.

FAQ;

• What is section 50 of the PMLA Act?
  Section 50. Powers of authorities regarding summons, production of documents and to give evidence, etc.
• What is a statement under section 50?
  "Section 50 statement is a piece of evidence. It is not the evidence before the Court. There is a difference between the two. Evidence before the Court is the actual statement made by the person in the court itself."
• What is the burden of proof under PMLA?
  When someone is suspected of committing the offence described in section 3, it is their responsibility to show that the profits of the crime are legitimate assets.
• Can proceedings under PMLA continue if there is no scheduled offence?
  “It is pretty evident that the PMLA lawsuit cannot proceed if there is no scheduled/predicate crime. Similarly, in the absence of a case involving a scheduled offence, the PMLA court does not have the authority to continue a PMLA case."
• Does PMLA have a retrospective effect?
  In the case of DA Paul v. Union of India & Ors [2020 SCC OnLine Kar 4995]., it was determined that money laundering under the PMLA is a “continuing offence” and as a result, the issue of whether it is “retrospective” in its effects does not arise.