On July 27, the Supreme Court passed a judgment on the constitutional validity of certain crucial provisions of the Prevention of Money Laundering Act (PMLA), which touch upon the expansive powers conferred on the Enforcement Directorate (ED). With the Supreme Court’s affirmation of the seemingly extraordinary powers conferred on the ED, the agency assumes wide scope of powers in dealing with cases of money laundering.
Moneycontrol takes a look at the scope of powers of the ED after the Supreme Court’s ruling and the difference in the procedure under the PMLA from regular criminal proceedings and why.
The top court ruling, likely to have significant political implications, came on a batch of more than 240 petitions, which challenged certain provisions of the PMLA for allegedly being in violation of the Constitution.
The PMLA was enacted in 2002 in conformity with India’s international commitments to curbing money laundering—a crime plaguing the whole world. PMLA is a special legislation and carves out a separate set of offences classified as money laundering.
The legislation also sets out a procedure for probing such cases and does not follow the Code of Criminal Procedure — a set of procedural rules governing general criminal proceedings in India.
The Act saw multiple amendments and the scores of petitioners before the court challenged the “unbridled” powers that the ED possesses on aspects such as making arrests, summoning the accused, search and seizure, and confessional statements.
What all can the ED do?
The top court held as constitutional ED’s power to make arrest, carry out search and seizure and issue summons to any person. The court said that the provisions “do not suffer from the vice of arbitrariness”.
It said that the legislation provides sufficient safeguards and threshold against misuse of the powers it confers on the agency and cannot be termed as arbitrary.
The court’s ruling comes at a time when Opposition parties are claiming the use of ED as a tool for harassment and political vendetta by the government.
The PMLA also allows the ED to make arrests without mandatorily providing a copy of the Enforcement Case Information Report (ECIR) to the accused. Having upheld this provision, the Supreme Court said an ECIR is an internal document of the agency and not required to be supplied to an accused mandatorily.
Relying on principles of natural justice, petitioners had challenged the provision allowing non-supply of ECIR to the accused. ECIR, like a First Information Report (FIR), mentions the allegations made against the accused. Under the criminal procedure, a copy of the FIR is to be supplied to an accused as a matter of right. The copy of the FIR empowers the accused to defend themselves against the allegations.
As for the ECIR, the top court rejected the challenge to the provision, saying that an ECIR cannot be equated with the FIR. It is sufficient for the ED to inform the accused of the grounds for arrest, the court said.
ED is not police: SC
The treatment given to confessional statements by accused persons to ED officials during questioning is another major departure of the PMLA from the usual criminal procedure.
The Evidence Act, 1972 makes a confession given by an accused to a police personnel inadmissible as evidence before the court. Moreover, Article 20 of the Constitution guarantees the right against self-incrimination as a fundamental right. But, under PMLA, a statement made before an ED official can be used as evidence against the accused.
The bench of Justices AM Khanwilkar, Dinesh Maheshwari and CT Ravi Kumar upheld this provision of the PMLA, with the rationale that an ED official is not a police officer, and as such, the provision is not marred by the constitutional guarantee against self-incrimination.
According to senior advocate Vikas Pahwa, this aspect of the court’s ruling may form the basis for seeking a review of the judgment. “I feel that the observations with regard to non-supply of ECIR, arbitrary power of arrest and admissibility of statement of the accused under Section 50 may be challenged by way of review or otherwise,” Pahwa said.
Pahwa also said a similar provision under the Narcotic Drugs and Psychotropic Substances Act (NDPS Act), which is also a special legislation like the PMLA, was recently read down and the court held that confessional statements made during an investigation cannot be used as evidence.
Drawing a parallel between the ED and the Narcotics Control Bureau (NCB), Pahwa said both the agencies are non-uniformed investigating agencies and functioning within the contours of special legislation governing them, and as such, the ruling on the aspect of self-incrimination may be sought to be reviewed.
Twin-test and reverse burden of proof
Normally, where the criminal jurisprudence in India sees bail as the rule and jail as an exception, the PMLA makes the offences it covers unbailable and lays down a stringent twin-test for securing bail.
As per this test, bail can be granted to an accused only if the special court is of the prima facie opinion that the accused is not guilty and will not engage in any criminality on being enlarged on bail.
The validity of this test was challenged by the petitioners, which included Opposition leaders like Karti Chidambaram, Mehbooba Mufti, and Anil Deshmukh. The twin-test, however, was upheld as constitutional by the Supreme Court in its over 500-page judgment.
This provision, according to the Supreme Court, has a direct nexus with the object and purpose sought to be achieved by the act.
“It (the judgment) has far-reaching implications on what constitutes proceeds of crime, who all attract the rigours of money laundering, conditions to be considered for grant of bail, etc. These will impact various cases pending before courts,” said HS ‘Bobby’ Chandhoke, Senior Partner, DSK Legal.
According to Pahwa, there is a silver lining also in the judgment. The court ruled that an acquittal or discharge of an accused in a predicate offence would do away with the case of money laundering also.
A predicate offence is an act that is identified as a criminal offence under other legislations and an offence of money laundering arises when the proceeds of predicate offence are used for illegal purposes.
With the judgment forming a reason for the ruling party to claim vindication and the Opposition parties to express concern, petitions seeking review of this judgment may be in the pipeline. However, as per Chandhoke, such reviews are not always successful.“Some may consider the decision to be worthy of a review. While a review can be filed as a matter of law, very rarely do they succeed,” Chandhoke said.