Reining in Excess: Punjab & Haryana High Court's Judgments Curtailing ED's Arbitrary Powers

The arrest and detention under the Prevention of Money Laundering Act often turn out to be a punishment due to the wide powers given to the Enforcement Directorate (ED) and its stringent bail provisions. The Supreme Court, in August, pointed out that after the amendment, over the past ten years, around 5,000 cases have been registered under the PMLA, but conviction has been obtained in only 40 cases.

In the evolving jurisprudence of the Prevention of Money Laundering Act (PMLA), the Punjab and Haryana High Court has repeatedly called out the exercising of broad powers of the ED and interpreted the provisions in light of constitutional safeguards .

SC Judgment In 'Pankaj Bansal' On Informing Grounds Of Arrest In Writing Applies Retrospectively

The Punjab & Haryana High Court clarified in Roop Bansal v. Union of India and another, that Apex Court's judgement in Pankaj Bansal case, would be applicable retrospectively.

The Supreme Court, while setting aside the arrest of other Directors of M3M Pankaj Bansal and Basant Bansal, had said,"...it would be necessary, henceforth, that a copy of written grounds of arrest is furnished to the arrested person as a matter of course and without exception."

In Roop Bansal's case, the High Court observed that, “No doubt, the Hon'ble Apex Court held that the grounds of arrest would “henceforth” be furnished in writing to the accused but at the same time, it declared the arrest and the consequential remand of Pankaj Bansal and Basant Bansal to be illegal. Had the intention been to make the condition only prospective, the Hon'ble Apex Court would not have declared the arrest of Pankaj Bansal and Basant Bansal to be illegal."

ED Officials Must Inform Arrest Grounds To Accused On Day Of 'Unlawful Restraint' Even If No Formal Arrest Is Made

The High Court in Pranav Gupta v. Union of India & Anr held that taking the accused persons in custody (unlawful restraint) without an official arrest memo will be counted as the day of the arrest and they are required to be informed about the ground of arrest on that day itself.

The Court further added that not furnishing the grounds of arrest on the day of custody will be violative of the mandatory provision of Section 19 of the PMLA.

In this case, the Court ordered the release of two directors of a Pharma Company arrested by ED officials in a money laundering case.

ED Arrest Illegal If Not Based On Well Documented 'Reason To Believe' U/S 19 PMLA

In Neeraj Saluja v. Union of India and another, the High Court held that "Any arrest shall be illegal when it directly contradicts the legal requirements mandated by the PMLA, especially under Section 19. This section requires material evidence and a well-documented 'reason to believe' that the individual is involved in money laundering activities. A breach of these requirements signifies a profound legal violation, rendering the arrest void ab initio."

Section 19 of the PMLA gives power to ED to arrest on the basis of material in possession, if it has “reason to believe” (the reason for such belief to be recorded in writing) that any person has been guilty of an offence punishable under this Act. However this comes with constitutional safeguard of informing the detainee as soon as he is arrested.

It emphasised that the term ”reason to believe” is not merely procedural but a substantive safeguard that underpins the legality of an arrest under the PMLA. It requires a qualitative assessment of evidence before depriving an individual of liberty."

Judges Of PMLA Courts Not Supposed To Act Like "Extended Arm Of ED"

The High Court pointed out the practice of passing custodial interrogation orders in a “routine manner” by Special PMLA Courts.

It cautioned the Judicial Officers deployed at Special PMLA Courts to not act as an "extended arm" of the central investigating agency Enforcement Directorate, by passing orders of remand against the suspect as a matter of course.

The Court in Balwant Singh v. Directorate of Enforcement criticized the Special Court for accepting ED's prayer in a routine manner and authorizing Singh's custodial interrogation, "while negating the salutary protection emanating from Article 21 of the Constitution".

It noted that the Special Court while passing the impugned remand order, thereby authorizing custody of petitioner to the E.D, failed to consider the drastic consequences and negated the rule of law.

Stating so, the judge set aside a Special Court's "routine order" granting ED custody for custodial interrogation of accused Balwant Singh in a PMLA case.

Direction To Sensitize ED Officers To Follow "reasonable time limit" For Interrogations

In another example of the Enforcement Directorate's broad powers, it interrogated a Congress MLA, an accused under PMLA for over 15 long hours continuously.

The Court called such practice “against the human dignity” and asked the Enforcement Directorate to take remedial measures and sensitize its officers to follow some "reasonable time limit" for interrogations of suspects under PMLA, in one go.

While noting that the accused Congress MLA Surendar Panwar was interrogated for 14 hours and 40 mins on July 19, in connection with alleged illegal mining, the Court declared the ED arrest as "illegal".

For future, the Court directed the ED to observe the mandate of right to life and liberty, which includes right to dignity, under Article 21 of the Constitution. "It would be appreciated if some necessary mechanism is put in place for fair investigation of the accused as per basic human rights laid down by the United Nations Organization (UNO), instead of meting out unnecessary harassment, for such a longer duration at one stretch for a given day," it said.

No Prosecution Under PMLA When Accused Acquitted In Predicate Offence/ Closure Report Filed

In Chetan Gupta v. Directorate of Enforcement and others, the Court clarified that when a closure report is filed in the predicate offence, the complaint filed by Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 (PMLA) based on that predicate offence would also be closed.

The Court explained that, "The proceedings under PMLA are always subservient and secondary to the primary proceedings under some principal criminal offense, which is termed the predicate offense. If the violations of the main criminal penal provisions are mentioned in the PMLA schedules, only then the Enforcement Directorate can inquire into such scheduled penal offenses  against the persons who have laundered the money, including or excluding the persons named as accused in the primary offense."

Addressing an important aspect, the Court said that, “There is no legal bar that restricts the powers of this Court under section 482 CrPC by ignoring the prayers to quash ECIR but to consider the remaining prayers to quash the complaint as well as all subsequent proceedings."

View Of Not Setting Aside Complaint Because Quashing ECIR Serves No Purpose Would Give Arbitrary Power To ED 

In Chetan Gupta's case the Court observed that since ECIR is not a condition precedent for starting an investigation or inquiry/inquiry by the ED and is only an internal record of the department, its quashing would serve no purpose whatsoever.

However, it would not imply that if one of the prayers made by the accused also includes quashing of ECIR, then the Courts will not look at other prayers like quashing of complaint and quashing of further proceedings or any other proceedings pending before the Enforcement Directorate, the judge highlighted.

The Court clarified further that, "If such a view is taken, then it would give untrammeled arbitrary powers to the Enforcement Directorate to continue and keep pending the inquiry/investigation against the accused under the pretext or disguise that even if an accused has been acquitted in the predicate offense, a decision is yet to be taken regarding the filing of a complaint against acquittal or such appeal is pending, or even when they do not find any evidence against the accused, at that stage, instead of absolving them, they continue to sit over the inquiry/investigation which would have unparalleled bearing on the accused mental health."

In the present case, the Court noted that "the petitioners have been acquitted in the primary predicate offense. Consequently, secondary evidence, i.e., the offense being prosecuted by the Enforcement Directorate, would also go automatically."

In the light of the above, the Court opined that the complaint filed by the Enforcement Directorate has to be closed along with consequential proceedings.

'ED Oblivious To Ground Realities': Court Slams ED For Objecting To Release Accused For 4 Days To Prepare Defence

Earlier this year, the Court dismissed the ED's plea in challenging the four day release of an accused arrested under Prevention of Money Laundering Act, granted by special court to enable him to procure documents in his defence.

The Court rejected the argument raised by ED that if the petitioner is taken out of jail and permission is given to him to meet other persons outside the jail premises, it will result in a grave miscarriage of justice, as it may give him a chance to deal with the proceeds of crime and crucial evidence.

The judge observed that the objection raised by ED "is far from the practicalities and the ground realities because family members and close friends are permitted to meet a prisoner even in jail. Confinement in the jail is not an isolation from society, but it is a restriction imposed on an accused to stay within four walls of a complex where people can come to meet a prisoner, and the inmates cannot come out to meet them. If somebody indulges in this tactic, they will get an opportunity during such interactions and even when the inmate comes to attend the trial."

When Investigating Agency Didn't Arrest, But Trial Court Wants Judicial Custody On Filing ECIR There Must Be Reasons To Deny Bail

In Gurinder Pal Singh @ Tinku v. ED made it clear that in PMLA cases when the investigating agency did not arrest, but the trial court wants judicial custody on filing the complaint, the Court must give reasons for denying bail.

The Court while granting anticipatory bail in a PMLA case, said, "When the Investigating agency did not arrest, but the trial court wants judicial custody on filing the complaint [ECIR], there must be reasons to deny bail, which are non-existent (in the present case)."

Accused Bound To Join Investigation Under PMLA But Cannot Be Compelled To Make Self-Incriminating Statement

In Gurpreet Singh Sabharwal v. State of Haryana and others the High Court balanced accused's right against self incrimination and duty to join investigation.

The Court said that the accused is duty-bound to cooperate in the investigation as per the summon issued under 50(2) of the PMLA but cannot be compelled to make an incriminating statement against himself in terms of the protection granted under Article 20(3) of the Constitution of India. It observed that, "The...fundamental right under Article 20(3) of the Constitution of India is available to be exercised as a shield by every accused in an offence punishable under the Prevention of Money Laundering Act which undoubtedly is a criminal law, promulgated 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."

Enforcement Directorate Can't Restrain Movement Of Persons Whose Premises Are Being Searched

The High Court in Dilbag Singh @ Dilbag Sandhu v. UOI observed that the ED cannot restrain the movements of the persons, whose premises are being searched in money laundering cases.

Perusing PMLA Rule, 2005, the Court explained that, “there is nothing which stops the persons whose premises are being searched from carrying out their daily routine including going to their offices/place of work and the authorities have a right to require the said persons to open any lock, safe, almirah and in case of non-compliance, the authorities have further power to break open the same and thus, it cannot be said that the authorities have a right to restrain the movements of the said persons i.e. the petitioners in the present case within the premises."

Conclusion

The PMLA has increasingly been seen as a tool used against political leaders in money laundering cases. It is high time the ED functions within its constitutional boundaries, adhering to the jurisprudence established by the Supreme Court and High Courts.

Recently, the Apex Court flagged the low conviction rates in the cases prosecuted by the Enforcement Directorate. The data furnished by the Union Government to the Parliament recently showed that the conviction rate in the ED cases since 2019 is merely 6.42%.

While expressing concern on prolonged trials under PMLA, Justice Surya Kant questioned "How long” an accused can be kept in custody in such cases?

It is worthwhile to mention that in the judgment granting interim bail to Delhi Chief Minister Arvind Kejriwal, the Supreme Court underscored the need for the Enforcement Directorate to have a uniform policy on when a person should be arrested under the PMLA.

Perusing the data on rising cases especially against MPs and MLAs, the Court Apex Court observed that, “The data raises a number of questions, including the question whether the DoE has formulated a policy, when they should arrest a person involved in offences committed under the PML Act,"

The agency must bear in mind the words of Chief Justice of India, N.V. Ramana, who warned against the “dilution of the Act” by invoking the PMLA in every case, urging its use to be “reasonable.”

Author can be reached at aimanjchishti@livelaw.in.