By Astha Priya, ICFAI Law School, Dehradun.
Directorate of Enforcement (ED, in short) is an organisation of the Central Government shouldered with the task of investigating the offence of money laundering (under Prevention of Money Laundering Act, 2002) and transgression of Foreign Exchange laws. Functions of ED includes enforcement of domestic laws such as The Prevention of Money Laundering Act, 2002 (in short, PMLA), The Foreign Exchange Management Act, 1999 (in short, FEMA), The Fugitive Economic Offenders Act, 2018 (in short, FEOA), The Foreign Exchange Regulation Act, 1973 (in short, FERA) and to act as Sponsoring agency under Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA).
Powers of ED under PMLA have always been encompassed with debates and challenges before the Court of Law. The Hon’ble Supreme Court, however, made an endeavour to put the challenges and questions regarding the sweepy powers of ED at rest in the landmark case of Vijay Madanlal Choudhary v. Union of India, where it upheld the power of ED to arrest, to hold search and seizure and to provisionally attach the property for a period not exceeding 180 days, subject to confirmation by the Adjudicating Authority, under PMLA. Recently, the question as to ED’s power to arrest and to seek custody of the arrested person again came forth in the case of Megala v. State, before the Hon’ble Madras High Court. In this case, a Division Bench of Mrs. Nisha Banu J. and D. Bharatha Chakravarthy J. passed a split judgement. However, the matter was then put before C.V. Karthikeyan J. for the decision on the issues of difference. The matter is still pending before the Apex Court.
Money laundering is a newly emerged type of white collar crime. Money laundering has been defined under Section 3 and is punishable under Section 4 of the PMLA. In simple words, money laundering is an offence where any person is indulged directly or indirectly in any activity related to proceeds of crime or projects the source of such proceeds as untainted. Section 4 of the PML Act, the offender shall be punished with rigorous imprisonment for a term not less than 3 years, but may extend to 7 years or 10 years (if proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule).
Power of ED to arrest and seek custody under PMLA:
As a matter of fact, several persons are involved in the offence of money laundering, thus making it difficult for the investigating agencies to trace the trail of the proceeds of crime. Therefore, to trace the actual offenders and trail of the proceeds of crime, ED has been conferred with wide powers under PMLA.
The offences under the PMLA are cognizable and non-bailable. Section 19 of the Act bestows the power of arrest on Director, Deputy Director, Assistant Director, or any other officer of ED authorised by Central Government in that behalf, if such officers has reason to believe (which is to be recorded in writing) that he is guilty of an offence punishable under Section 4 of the Act. As the offence under this Act is a non-bailable one, a person may be arrested without warrant (Explanation to Sec. 45). After the arrest, the accused must be informed of the reasons of arrest and shall be produced before such Court having jurisdiction in the matter, within 24 hours of arrest. The arresting power of ED was challenged in Vijay Madanlal’s case (supra), on the ground of being arbitrary and unconstitutional because a person may be arrested under PMLA by the authorised officer even without registering a formal complaint. But, the Hon’ble Apex Court upheld the power of arrest stating that similar provision of arrest at the stage of inquiry has been provided under various Acts such as Section 35 of FERA and Section 102 of Customs Act. The Court further held that such a provision under PMLA has a reasonable nexus with the object and purpose of the Act, which are, prevention of the offence of money laundering, confiscation of property constituting proceeds of crime and prosecution of those who are guilty. Also, various pre-conditions are to be fulfilled while arresting a person under Section 19. There must be a reason to believe that such person is involved in the offence of money laundering, such reasons to be recorded in writing, report to be forwarded to the Adjudicating Authority for preservation and the accused must be produced before the Court within 24 hours. It ensures that the power is not exercised by the authorised officers in a whimsical manner.
Section 5 of the Code of Criminal Procedure, 1973 (Cr.P.C), if read with Section 65 and 71 of the PMLA, gives effect to the rule of interpretation that provisions of Special law prevails over the general provisions. Therefore, the procedures related to registration of offence and investigation of the offence of money laundering under PMLA overrides the provision of Cr.P.C. In the Vijay Madanlal’s case (supra), it was held that the procedure after the arrest, such as production of accused before the Court within 24 hours and filing of Complaint is governed by Cr.P.C., as no inconsistent provision has been provided under PMLA. ED can also seek custody of the accused for the purposes of further investigation in the matter of money laundering under Section 167, Cr.P.C.
Recently, the question arose in the case of Megala v. State, before the Hon’ble Madras High Court that whether ED has the power to seek custody of the accused for further investigation? While deciding the matter on the issues of difference, Karthikeyan J. observed that, under Section 19 of the PMLA, the word ‘punishment’ has been used, which can be provided only by a penal procedure, which is to be read with Sections 3 and 4 of PMLA. If section 19 is read with Sections 3 and 4, it can be inferred that the arrested person is bound to subjugate himself to the procedure of trial provided under Cr.P.C. As provisions of Cr.P.C are applicable as per Section 65, PMLA, the authorised persons under section 19, who are empowered to arrest, can take benefit of every provision of Cr.P.C for the purpose of logical conclusion of the process of trial. If further investigation is required for the said purpose, authorised officials can also seek custody of the accused, even if such officials are not considered as police officers.
Conclusion:
It can be concluded that ED has power to arrest the person and may also seek custody of the accused for further investigation. Here, the view taken by Madras High Court regarding the power of ED to seek custody of accused seems to be logically correct. The words used under Section 167(2) are “authorise the detention of the accused in custody as such Magistrate thinks fit”. The section nowhere explicitly uses the term ‘police custody’. In Megala's case, it was held that “The Legislature, in none of the enactments, has stated about police custody. Therefore, the Special Court before which the accused is produced, if it thinks fit, may grant custody of the accused to ED, in the initial 15 days, but not exceeding such period. ‘Such custody’ also includes custody to ED and it is not a sound contention that ‘custody’ under Section 167, Cr.P.C implies either ‘police custody’ or ‘judicial custody’. However, the final determination of the matter by the Hon’ble Supreme Court as to challenges to the power of ED to arrest and seek custody under PMLA is still awaited.
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