What Is The Procedure To Be Followed By ED On Receiving Letters Of Request From Contracting State Under PMLA? Delhi HC Answers

The Delhi High Court on Wednesday has passed a detailed order concerning the procedure to be followed by the Enforcement Directorate upon receiving letters of requests from a contracting State under Section 60 of the PMLA and other connected issues. 

Justice Pratibha M Singh, who was of the opinion that the request for freezing or seizure of assets/property must have a reasonable basis having sufficient grounds for taking action, held thus:

"..ED/ Adjudicating Authority, would have to adhere to all the provisions in respect of recording the 'reasons to believe', supplying the 'Relied Upon Documents' etc., as is required to be done in the case of domestic enquiries, investigations, surveys, searches and seizures under the provisions of the PMLA, and the Rules and Regulations."

The Court added that while it is essential to provide legal assistance and extend cooperation in response to requests received from the contracting States, the same must be within the four corners of domestic law and cannot be beyond what is contemplated under the domestic law. 

"It cannot result in any contradiction thereof, and in cases where contradictions arise, it is the domestic law that prevails," the Court said. 

Sec. 60 of the PMLA provides that where a letter of request is received by the Central Government from a court or an authority in a contracting State requesting attachment or confiscation of the property in India, by any person from the commission of an offence under sec 3 committed in that contracting State, the Central Government may forward such letter of request to the Director for execution in accordance with the provisions of the Act.

Analyzing the said provision, UN Convention against Corruption (Merida Convention) and UN Convention against Transnational Organised Crime and the Protocols (Palermo Convention), the Court observed that the requests from contracting states cannot be treated at a higher threshold.

Other Observations

- Immediately upon a search and seizure/ freezing order being passed, the Director ED, or the person authorized has to forward a copy of the 'reasons to believe' recorded by the ED along with 'material in its possession' to the Adjudicating Authority, in a sealed cover, as per the provisions of the Prevention of Money Laundering (Forms, Search and Seizure or Freezing and the manner of forwarding the reasons and material to the Adjudicating Authority, Impounding and Custody of Records and the Period of Retention) Rules, 2005. 

- Along with the application under Section 17(4), The Director ED or the person authorized has to transmit all the material in the possession of the ED in respect of the said case, to the Adjudicating Authority, in accordance with the procedure stipulated in Rule 8 of the 2005 Rules. 

- It would not be permissible for the ED to retain some part of the material, and send partial documents to the Adjudicating Authority, at this stage, in as much as the statute contemplates sending of `the material in possession of the authority' and NOT 'material forming the basis of the 'reasons to believe''.

- The Adjudicating Authority cannot mechanically go by the reasons recorded by the ED, and has to have separate and independent grounds to believe that such an offence has been committed. 

- No fee can be charged for supplying the 'Relied Upon Documents' by the Adjudicating Authority directly, or through the ED.

- The Adjudicating Authority has to, as per Section 8(2) of the PMLA, first consider the reply to the show cause notice filed by the defendants; secondly, hear all the parties in a meaningful manner; and thirdly peruse all the relevant material placed on record before it, and only then record a finding confirming the search or seizure/ confiscation/ freezing, after reaching a conclusion that the defendant(s) is involved in the offence of money laundering under Section 3 of the Act, or is in possession of proceeds of crime.

The Court also added that the Government may also consider rationalizing the fee structure for inspection and for copying under Regulations 17 and 18 of the Adjudicating Authority (Procedure) Regulations, 2013.

The observation came in a bunch of pleas challenging freezing orders passed by the Directorate of Enforcement wherein the bank accounts of the Petitioners were ordered to be frozen.

The Court noticed that a carte blanche freezing order was passed, freezing several bank accounts belonging to 66 companies in the matter.

"Such freezing of bank accounts could lead to disruption of personal lives and/or of businesses. Thus, measures such as freezing of bank accounts ought to be proportionate and taken only to the extent required," the Court added. 

Accordingly, the writ petitions were disposed of. 

Click Here To Read Order