Introduction
William Pitt said in the British Parliament in 1763 that, “The poorest man may in his cottage bid defiance to all the forces of the Crown. It may be frail; its roof may shake; the wind may blow through it; the storm may enter; the rain may enter; but the King of England cannot enter — all his force dares not cross the threshold of the ruined tenement!”[1]
For any democracy to thrive there must be proper checks and balances in the exercise of the powers of its law enforcement agencies. In the Indian context, the Directorate of Enforcement (ED) has massive discretionary powers vested in it, and its prosecutorial record suggests that it has been less than scrupulous about exercising those vast powers. There have been multiple instances, where the agency has been found wanting in its adherence to the procedures established under the law of its creation, the Prevention of Money-Laundering Act, 2002[2] (PMLA), especially in matters of seizure and the attachment of properties.
The fear of arbitrary action by the ED is palpable, not least because liberty and personal property are at stake. It is also because the PMLA envisages a sui generis adjudication procedure[3], under Section 8 of the Act, with its own internal checks and balances – which again, are not scrupulously followed[4]. In fact, there have even been instances[5] where ED has switched gears mid-prosecution and have even attempted to justify property attachments under two laws – the PMLA or the Criminal Procedure Code, 1973 (CrPC), using a “whatever sticks” approach. Hence a criminal statute that offers neither predictability nor clarity in its application would raise serious doubts about the integrity of the underlying prosecution in the minds of Judges.
The Supreme Court in Tofan Singh v. State of T.N.,[6] held that the “investigating officers” under the special statutes such as the Narcotics Drugs and Psychotropic Substances Act, 1985[7] shall be deemed to be “police officers,” within the meaning of Section 25 of the Evidence Act, 1872[8] (no confession made to a police officer, shall be proved as against a person accused of any offence). However, under Section 50(4) of the PMLA, all proceedings under Sections 50(2) and (3) are deemed to be a “judicial proceeding”. As ED proceedings are “judicial proceedings,” statements made before ED are admissible as evidence, negating the Tofan Singh judgment[9], and subsequently the said Section 25. While many claim[10] Section 50 of the PMLA to be violative of Article 20(3) of the Constitution of India[11] (the Constitution), the Courts have more often than not held it not to be.[12] Though, if the statement is recorded after the arrest, it does violate Article 20(3).[13] Moreover, one is not entitled to invoke Section 160 CrPC since the PMLA specifically and comprehensively deals with the “power, authority and procedure for issuance of summons” under Section 50 of PMLA.[14]
Apart from criticism about its lukewarm adherence to procedural safeguards under the Act, the ED’s enthusiasm to raid and charge individuals does not seem to lead to successful prosecutions. Naturally, this has led to strong criticism about the agency’s integrity and vulnerability to political pressure. The statistics paint a grim picture in this regard. The ED conducted over 1700 raids between March 2011 and January 2020 in connection with 1569 specific investigations; however, it managed to secure convictions in only nine.[15]
Moreover, there have been reported instances where the ED has taken recourse to wrong provisions of law, while attempting to seize the assets of an individual.[16] So, the question must arise, is there any mechanism to maintain checks and balances over ED, otherwise loaded with vast and unfettered powers?
This article focuses on the fundamental concept of seizure, and whether it can be or is being done arbitrarily and/or is there any due process to be followed while exercising this power, which often results in allegations against the ED of harassing individuals by restricting their right to private property and personal liberty.
Seizure of assets
The ED is empowered to conduct “search and seizure” against any person, on the basis of information in possession of the officer concerned and by specifying in writing precise “reasons to believe” that the act of money-laundering has been committed or a person is in possession of any proceeds of crime involved in money-laundering.
Section 17(1-A) of PMLA gives further power to seize the record and a copy of the said order is to be served on the person concerned. The seizure memo is required to be signed by two independent witnesses. Section 17(4) of PMLA provides that on the freezing of the record of property within a period of 30 days from such seizure or freezing, an application has to be filed in writing of such record of a continuation of order of freezing before the adjudicating authority. The said reasons thereafter have to be forwarded to the adjudicating authority under sub-clause (2) and the person arrested is to be taken to the Judicial Magistrate within 24 hours or a Metropolitan Magistrate having the jurisdiction.
However, vide the Finance Act, 2019 the proviso to Sections 17(1) and 18(1) were deleted, while empowering ED to enter any property for conducting search and seizure even without reporting of a scheduled offence to a Magistrate or any other competent authority, with respect to Section 157 CrPC. This amendment massively broadened the existing powers of ED by bringing Sections 17 and 18 at par with Section 19, where there is no precondition to forward a report under Section 157 CrPC to a Magistrate – thus eliminating judicial oversight at this stage entirely.
Notably, the property seized under Section 17 or Section 18 of the PMLA can be retained by an authorised officer, if she/he has reason to believe that such property is required to be retained for adjudication under Section 8 of the PMLA.[17] The property can be retained for a period of 180 days from the day on which it was seized or frozen.[18] Details of property seized or frozen have to be informed to the adjudicating authority in a prescribed manner.[19] The seized property is required to be returned to the person from whom it was seized after 180 days, unless the adjudicating authority permits retention of property beyond this period.[20] These are some of the many procedural safeguards embedded in the statute, essentially to maintain checks and balances over powers of ED.
The Prevention of Money-Laundering (Receipt and Management of Confiscated Properties) Rules, 2005[21] makes provision for receipt and management of confiscated properties. The Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013[22] provide for specific procedures relating to taking possession of attached or frozen properties confirmed by the adjudicating authority. However, discarding the principle of natural justice, the rules make no provision as to how the administrator will dispose of the property. Though, Rule 3 of the Prevention of Money-laundering (Restoration of Confiscated Property) Rules, 2016[23], lays down a procedure by carving out power in favour of the Special Court.
Section 24 of the PMLA provides that, in any proceedings related to proceeds of crime, if a person is charged with Section 3 of the PMLA, the authority or court shall presume that such proceeds of crime are involved in money-laundering; and that in the case of any other person the authority or court, may presume that such proceeds of crime are involved in money-laundering. However, such burden only shifts onto the person, where there is a trigger of a foundational fact, based on the “reason to believe” i.e. there is reason to believe that the person is involved in the offence.[24]
Section 65 of the PMLA being one of the means of action gives the ED wide discretion by providing that provisions of CrPC shall apply to PMLA insofar as they are not inconsistent the provisions of PMLA. Section 102(2) CrPC obligates the investigating officer to report the seizure of property to the officer in charge of the police station if the investigating officer is subordinate to the officer-in-charge. The term “any offence” and “any property” opens the floodgates for the police officer to seize any property under the suspicious circumstances under any statute. Such confusion bestows unfettered power on the ED to investigate, arrest and harass anyone under the garb of “reasonable suspicion”, as the Finance Act of 2019 clarified that the offences under the Act have always been cognizable and non-bailable.[25] Therefore, Section 102(3) balances the power of police authorities to seize any property irrespective of the nature of the offence i.e. cognizable or non-cognizable because the investigating officer is obligated to report to the Magistrate about the seizure of the property and if the property cannot be furnished to the court then the police authorities shall give that property to any person who promises to execute a bond for providing the property before the court as and when the Magistrate directs.
Requisites for an order of search and seizure
Section 17 of the PMLA provides for search and seizure, and it lays down the procedure, sub-clause (1) of which is explained here for clarity: The order of authorising any subordinate officer for search and seizure is to be passed either by Director or any officer not below the rank of Deputy Director authorised by the Director. The order for search and seizure is to be passed based on information in possession of the Director or officer not below the rank of Deputy Director authorised by him. On the basis of information received, the Director or other authorised officer not below the rank of Deputy Director must have “reason to believe” by recording these reasons of his belief that any person:
(i) has committed any act which constitutes money-laundering; or
(ii) is in possession of any proceeds of crime involved in money laundering; or
(iii) is in possession of any records related to money laundering; or
(iv) is in possession of any property related to crime.
On fulfilment of these requirements, the Director or any officer equivalent above the rank of Deputy Director authorised by the Director may direct any subordinate officer to conduct search and seize property or documents pertaining to money-laundering. The officer conducting the search has to do it in the following manner, as stipulated in Section 17(1)(iv) of the PMLA:
- enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept;
- break open the lock of any door, box, locker, safe, almirah, or another receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;
- seize any record or property found as a result of such search;
- place marks of identification on such record or property, if required or make or cause to be made extracts or copies therefrom;
- make a note or an inventory of such record or property; and
- examine on oath any person who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under PMLA.
However, the said action of seizure is sustainable, subject to conditions stipulated in the proviso to Section 17(1) of the PMLA, which says that the search and seizure shall not be conducted unless, in relation to the scheduled offence, a report has been forwarded to a Magistrate under Section 157 CrPC, or a complaint has been filed by a person, authorised to investigate the offence mentioned in the Schedule, before a Magistrate or court for taking cognizance of the scheduled offence, as the case may be, or in cases where such report is not required to be forwarded, a similar report of information received or otherwise has been submitted by an officer authorised to investigate a scheduled offence to an officer not below the rank of Additional Secretary to the Government of India or equivalent being head of the office or Ministry or department or unit, as the case may be, or any other officer who may be authorised by the Central Government, by notification, for this purpose.
Judicial interpretation of the power to seize assets
The Delhi High Court in Mahanivesh Oils & Foods (P) Ltd v. Directorate of Enforcement,[26] said that, “[a]ny provisional attachment under Section 5(1); seizure under Section 17 or Section 18 of the Act (PMLA); or the order of attachment by the adjudicating authority under Section 8(2) is founded on the fundamental premise that the properties attached/seized ‘are involved in money-laundering’.
Moreover, the Delhi High Court observed in Abdullah Ali Balsharaf v. Directorate of Enforcement[27] that:
- … Powers of seizure of properties is a draconian power. Grant of such authoritarian and drastic powers, without commensurate checks and balances, would militate against the principle of rule of law engrafted in the Constitution of India. A police officer does not possess unfettered rights to freeze any asset without the same being reported immediately to a Magistrate. The party aggrieved, thus, has immediate recourse in respect of the said action of freezing the property…. The PMLA has separate checks and balances to ensure that such powers are exercised in aid of the object of confiscating or vesting such proceeds of crime with the Government. The power to provisionally attach or seize or freeze a property can be exercised only (a) if the specified officer has material in his possession, which provides him reason to believe that the property sought to be attached or seized is proceeds of crime or related to a crime; and (b) after recording the reasons in writing.
The Delhi High Court in Directorate of Enforcement v. Axis Bank[28] noted that:
- As in the case of power of survey, search and seizure, search of persons, retention of property and power to arrest, for enforcing “provisional attachment”, it is sine qua non for the empowered officer, acting under Section 5(1), to record in writing his “reason to believe” that grounds are made out to direct such provisional attachment.
The view of the Gujarat High Court in Paresha G. Shah v. State of Gujarat[29] that, “an order or instructions of attachment/freezing of bank account passed or issued by the authority under the PMLA in exercise of his powers under Section 102 of the Code read with Section 65 of the PMLA should not continue or remain in operation for an indefinite period of time” was noted by the PMLA Appellate Tribunal in Jagdishbhai Ishwarbhai Patel v. Directorate of Enforcement.[30]
For seizure under CrPC, the mandatory conditions of Section 102 were discussed by the Supreme Court in State of Maharashtra v. Tapas D. Neogy,[31] wherein it was observed that the conditions as:
(a) there must be a “property”; and
(b) in respect of that “specific property” there must be a suspicion of commission of any offence.
In M.T. Enrica Lexie v. Doramma,[32] the Supreme Court interpreted the following conditions to be construed as a property i.e. (a) property which is stolen or suspected to be stolen; and (b) the property directly linked to crime.
In Nevada Properties (P) Ltd. v. State of Maharashtra,[33] the Supreme Court ruled that the power of a police officer to seize any property, which may be found under circumstances that create suspicion of the commission of any offence, would not include the power to attach, seize and seal an immovable property. Moreover, the Kerala High Court in Mohd. Enamul Haque v. CBI,[34] was of the view that:
- … No agency can arbitrarily freeze bank accounts under Section 102 CrPC, or keep the accounts frozen indefinitely, because it will have the ultimate effect of denying the constitutional or legal rights of the account-holder. Such a step can be resorted to by the investigating agencies only if it is found absolutely necessary.
In Guruprasath v. State[35] the Madras High Court reiterated that “bank accounts cannot be freezed indefinitely”. Further, the Gujarat High Court in Bhanuben v. State of Gujarat,[36] held that:
“… [t]he order of attachment of the bank accounts in exercise of powers under Section 102 CrPC read with Section 65 of the PMLA should not continue for an indefinite period of time.”
Conclusion
The ED for achieving purposes other than the ones sought to be achieved, seizes a property at first, and decides later whether to invoke provisions of PMLA, or Section 102 CrPC as was done in Opto Circuit[37]. Such a position of law places an undue burden on individuals, as their right to private property is compromised through statutory discretion in favour of ED. Therefore, a balance must be struck between the right to property of an individual and the measures which may be required to be taken by an investigating agency for effective enforcement of the proceedings under PMLA.[38] The 44th Amendment to the Constitution deleted both Article 19(1)(f) and Article 31 from the Constitution, however, Article 300-A states that “no person shall be deprived of his property, save by the authority of the law”. Therefore, though right to property is not a fundamental right, it still is a constitutional right. And, as the Supreme Court noted, “However, laudable be the purpose, the executive cannot deprive a person of his (their) property without specific legal authority, which can be established in a court of law.”[39]
* Criminal lawyer, New Delhi.
** Intern, Law Chambers of Jai Anant Dehadrai, 3rd year student, BA LLB (Hons.), Jamia Millia Islamia, Delhi.
[1] William Miller v. United States of America, 1958 SCC OnLine US SC 131 : 2 L Ed 2d 1332 : 357 US 301, 307 (1958) (quoting the 1763 speech of William Pitt, Earl of Chatham, in the House of Commons).
[2] Prevention of Money-Laundering Act, 2002.
[3] See, Section 8 of the PMLA [Section 8(1) of PMLA provides that on receipt of specific complaints, if the adjudicating authority has reason to believe that any person has committed a defined offence, it may serve a notice of not less than thirty days on such person to justify the acquisition of such property/asset.]
[4]The adjudicating authority routinely fails to conclude proceedings under Section 5 within 180 days – thus unjustly elongating attachment of properties. See, Vikas WSP Ltd. v. Directorate Enforcement, 2020 SCC OnLine Del 1732.
(It was held that the limit of 180 days being the prescribed period, the adjudicating authority becomes functus officio after the expiry of the said limit. There is no power conferred by the PMLA upon the authority to extend the validity of the provisional attachment order.)
[5] In Opto Circuit India Ltd. v. Axis Bank, 2021 SCC OnLine SC 55 the Court rejected the ED’s argument that the “stop operation” was requested to prevent the layering/diversion of and to safeguard the proceeds of crime. The Court further rejected the ED’s contention that the power of seizure is available under Section 102 CrPC which has been exercised and as such the freezing of the account would remain valid. The Court noted that the power is to be exercised in the specified manner alone, failing which it would fall foul of the requirement of complying due process under law.
[7] Narcotics Drugs and Psychotropic Substances Act, 1985.
[9] Supra Note 6.
[10] Among several challenges include Mehbooba Mufti’s recent claim to declare Section 50 as void, inoperative, and violative of Article 20(3) of the Constitution. See, PTI, Mehbooba Mufti moves Delhi HC challenging ED summons in money laundering case (The Print, 9-3-2021) <https://theprint.in/judiciary/mehbooba-mufti-moves-delhi-hc-challenging-ed-summons-in-money-laundering-case/618674/> last accessed 25-5-2021.
[12] P. Chidambaram v. Directorate of Enforcement, 2019 SCC OnLine Del 11129 ; Virbhadra Singh v. Enforcement Directorate, 2017 SCC Online Del 8930 ; Vakamulla Chandrashekhar v. Enforcement Directorate, 2017 SCC OnLine Del 12810 .
[13] Gaurav Gupta v. Director of Enforcement, 2015 SCC OnLine Del 9929.
[14] Nalini Chidambaram v. Directorate of Enforcement, 2018 SCC OnLine Mad 5924.
[15] Kaushik Deka, Who is an Enemy of the State? (India Today, 27-2-2021) <https://www.indiatoday.in/magazine/cover-story/story/20210308-who-is-an-enemy-of-the-state-1773222-2021-02-27> last accessed 22-3-2021.
[16] For instance, the ED wrongfully obtained an order of seizure (LR) of bank account located in a foreign jurisdiction under Section 57 of the PMLA, instead of satisfying and complying with the underlying preconditions stipulated under Section 60 of the PMLA. See, Directorate of Enforcement v. Gautam Khaitan, CNR No: DLCT11-000927-2019, CC No: 01/2015, order dated 26.04.2021.
[18] Ibid.
[21] Prevention of Money-Laundering (Receipt and Management of Confiscated Properties) Rules, 2005.
[22] Prevention of Money-Laundering (Taking Possession of Attached or Frozen Properties Confirmed by the Adjudicating Authority) Rules, 2013.
[23] Prevention of Money-laundering (Restoration of Confiscated Property) Rules, 2016.
[24] Naresh Jain v. Deputy Director, Directorate of Enforcement, FPA-PMLA-1332/DLI/2016, order dated 12-9-2019 [Appellate Tribunal, Prevention of Money Laundering Act]. See also, Hanif Khan v. Central Bureau of Narcotics, (2020) 16 SCC 709
[25] Section 200, Finance (No. 2) Act, 2019.
[27] 2019 SCC OnLine Del 6428.
[28] 2019 SCC OnLine Del 7854.
[30] 2017 SCC OnLine ATPMLA 40.
[34] 2018 SCC OnLine Ker 22772.
[35] 2017 SCC OnLine Mad 34779.
[36] 2017 SCC OnLine Guj 2517.
[37] Supra Note 5.
[38] Rose Valley Real Estate and Constructions Ltd. v. Union of India, 2015 SCC OnLine Cal 539.
[39] Hari Krishna Mandir Trust v. State of Maharashtra, (2020) 9 SCC 356.