Judicial bulwark against abusive exercise of power under PMLA

For years, there was a gaping hole in India’s legal system when it came to combating the menace of money laundering and financial crimes. The nation lacked robust laws and provisions to deter the corruption and white-collar crimes that were festering unchecked.

One of the initiatives taken by the international community to obviate the threat was the Financial Action Task Force (FATF). It made 40 recommendations that provided the foundation for comprehensive legislation to combat the problem of money laundering. As a result, the Prevention of Money Laundering Act, 2002 (PMLA) emerged in 2002.

Arming the Directorate of Enforcement (ED) with the authority to trace and seize properties derived from criminal proceeds, PMLA had the potential to be a game-changer. However, in its initial years, the Act’s enforcement remained lackluster and lifeless. The amount of assets recovered/seized up to 2014 was a mere ₹35 crore.

But as time passed, the tables began to turn, and PMLA’s implementation grew increasingly stringent and uncompromising, causing ripples of fear and panic. Suddenly, the accused found themselves staring down the barrel of this stringent law, facing the terrifying prospect of having their properties attached and their freedom stripped away on the whims of power authorities. The seizure of ‘proceeds of crime’ just did the trick. The rapacity at which ED attached properties sent shivers down the spines of people looting money through sophisticated white-collar crimes.

Amidst the chaos, innocent individuals became ensnared in PMLA’s ruthless grip, their lives upended by baseless harassment and unjust persecution. The pendulum swung from one extreme to another.

As history is witness, the judiciary in India has time and again stood tall as a ray of hope and a guardian of constitutional principles and balanced the need for enforcement of the law while zealously protecting the rights of citizens.

Through a series of landmark judgments, the courts have painstakingly crafted a web of safeguards, a delicate equilibrium that balances PMLA’s effectiveness with the sacred rights of the accused. These judicial interventions have not merely paid lip service to due process and natural justice; they have become a shield against the arbitrary exercise of power. Each ruling etches another layer of protection, strengthening the fundamental liberties that lie at the heart of our Constitution. Some of the cushions given by the Supreme Court are discussed in the following paragraphs.

Need for speaking orders

The applicability of principles of natural justice to administrative orders was initially a subject of debate. However, the Supreme Court's landmark judgment in AK Kraipak v. Union of India clarified this ambiguity, unequivocally holding that administrative orders must conform to the principles of natural justice. One fundamental tenet of natural justice is the requirement to issue well-reasoned orders. The provision of speaking orders, which explicitly articulate underlying reasons, serves to promote accountability on the part of the authority and safeguards the individual's right to a fair trial by ensuring they are informed of the specific wrongdoing attributed to them. For this reason, adjudicating authorities (AAs) need to pass a well-reasoned or speaking order.

Attachment of assets

Section 5 of the PMLA empowers the Director or any officer not below the rank of the Deputy Director so authorised for the purpose of attachment of property involved in money laundering. For invoking the second proviso, the ED must first apply its mind to the materials on record before recording in writing reasons to believe that provisional attachment is necessary. There must be a satisfaction that if the property involved in money laundering or “proceeds of crime” are not attached “immediately”, that might frustrate the confiscation proceedings under the Act. The Supreme Court reiterated in Vijay Madanlal Choudhary v. Union of India that an order passed under Section 5(1) of the Act is provisional in nature and is valid for up to 180 days, subject to confirmation by the AA under Section 8 of the Act.

The apex court in Vanpic Ports (P) Ltd v. Directorate of Enforcement and various High Courts have consistently held that the attachment of property under Section 8 of the PMLA must be when there is a ‘reason to believe’ and the authority must apply its mind to the facts and circumstances of each case before passing an order of attachment. A mere bald assertion that property is the subject matter of money laundering would not suffice until a finding thereto has been recorded.

It may be noted that the PMLA has ensured that powers conferred to the AA and ED are not fettered by mandating the authorities to provide reasons for confiscating the property involved in the money laundering.

Grounds for arrest and procedure

Section 19 of PMLA provides that the ED must inform the accused of the grounds of his arrest when the ED has a reason to believe that person has been guilty of an offence punishable under this Act. Reliance in this regard is placed on Pankaj Bansal v. Union of India & Ors. Recently, in the case of Prabir Purkayastha v. State (NCT of Delhi), the Apex Court held that “the right to be informed about the grounds of arrest flows from Article 22(1) of the Constitution of India and any infringement of this fundamental right would vitiate the process of arrest and remand.”

In Pankaj Bansal, it was held that the ED needed to provide written ‘reasons for arrest’ to a person arrested under the provisions of the PMLA. However, the said ruling was silent on the timing of the informing. Even Section 19 of the PMLA uses the expression “as soon as may” to inform of the grounds of the arrest to the accused. Subsequently, the Supreme Court in the case of Ram Kishor Arora v. Directorate of Enforcement clarified that the ED need not immediately convey the reasons for arrest and that it could communicate the reasons to the arrestee within 24 hours of his arrest.

While the judgments are indisputably a step in the right direction, aimed at providing procedural fairness to the accused, certain concerns may still arise. For instance, it is entirely possible that the arrested person may be produced before the special court for remand to decide the issue of remand, without even being aware of the grounds of his arrest and an arrestee may be remanded to the custody of ED, without him or the remanding court being aware of the grounds for arrest, thereby rendering the remand hearing a futile exercise for the arrestee.

It may be safe to say that what was aimed to be a procedural safeguard may not accrue to the benefit of the arrested person. Hopefully, the judiciary will throw some light on it in the coming times.

No arrest if cognisance taken by trial court

Recently, in Tarsem Lal v. Directorate of Enforcement, the Supreme Court held that after the trial court takes cognisance, the investigating agency loses its authority to arrest the accused under Section 19 of the PMLA. This decision stands as a bulwark against potential abuse of power and arbitrary actions, firmly rooted in the principles of due process and fair trial enshrined in the Constitution. The Court clarified that after cognisance is taken of the offence under Section 4 of the PMLA based on a complaint under Section 44(1)(b), the ED and its officers are powerless to exercise powers under Section 19 of PMLA to arrest a person shown as an accused in the complaint. The only way the ED may take the accused into custody is by applying for the custody of the said accused before the special court. By upholding this principle, the Supreme Court has reinforced its commitment to protecting individual liberties and preventing abuse of power by enforcement agencies.

If half the arrest period is served, bail cannot be denied

Section 436A of the Code of Criminal Procedure (CrPC) provides that where an undertrial prisoner other than one accused of an offence for which death has been prescribed as one of the punishments, has been under detention for a period extending to one-half of the maximum period of imprisonment provided for the alleged offence, he shall be released on his personal bond, with or without sureties. Needless to mention, the provisions of CrPC shall apply in PMLA cases. Reliance in this regard is placed on Ajit Peter Kerkar v. Directorate of Enforcement & Anr.

The ruling may provide relief to the persons facing PMLA charges by ensuring that they are not subjected to prolonged detention without being convicted and provides a safeguard against abuse of power by enforcement agencies.

Conclusion

The PMLA, despite its noble intent of combating financial crimes, harbours the potential for infringement upon fundamental rights and liberties. In this regard, the role of the judiciary as the protector of constitutional values cannot be overstated. Through a series of landmark judgments, the courts have established crucial safeguards, ensuring that the powers conferred under the Act are not exercised in an arbitrary or unfair manner.

As the nation’s legal landscape continues to evolve, these judicial safeguards serve as beacons of hope, ensuring that the pursuit of justice remains inextricably intertwined with the preservation of due process, natural justice and the rule of law - the bedrock of a truly democratic society.

Gagan Kumar is an advocate at Krishnomics Legal.