Powers of Director, Enforcement Directorate under PMLA 2002
The Directorate of Enforcement or Enforcement Directorate (ED) is a domestic law enforcement agency and economic intelligence agency. It is responsible for enforcing economic laws and fighting economic crimes in India. The origin of the ED goes back to May 1956, when an "enforcement unit" was formed, for handling Exchange Control Laws violations under the Foreign Exchange Regulation Act, 1947. In 1957, the unit was renamed as the Enforcement Directorate. Ministry of Finance is the nodal ministry of ED.
The Directorate of Enforcement is a multi-disciplinary organization mandated with investigation of offence of money laundering and violations of foreign exchange laws. The statutory functions of the Directorate include enforcement of following Acts:
1. The Prevention
of Money Laundering Act, 2002 (PMLA): It
is a criminal law enacted 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. ED has been given the
responsibility to enforce the provisions of the PMLA by conducting
investigation to trace the assets derived from proceeds of crime, to
provisionally attach the property and to ensure prosecution of the offenders
and confiscation of the property by the Special court.
2. The Foreign
Exchange Management Act, 1999 (FEMA): It is a civil law enacted to consolidate and amend the
laws relating to facilitate external trade and payments and to promote the
orderly development and maintenance of foreign exchange market in India. ED has
been given the responsibility to conduct investigation into suspected
contraventions of foreign exchange laws and regulations, to adjudicate and
impose penalties on those adjudged to have contravened the law.
3. The Fugitive
Economic Offenders Act, 2018 (FEOA): This
law was enacted to deter economic offenders from evading the process of Indian
law by remaining outside the jurisdiction of Indian courts. It is a law whereby
Directorate is mandated to attach the properties of the fugitive economic
offenders who have escaped from the India warranting arrest and provide for the
confiscation of their properties to the Central Government.
4. The Foreign
Exchange Regulation Act, 1973 (FERA): The
main functions under the repealed FERA are to adjudicate the Show Cause Notices
issued under the the said Act upto 31.5.2002 for the alleged contraventions of
the Act which may result in imposition of penalties and to pursue prosecutions
launched under FERA in the concerned courts.
5. Sponsoring
agency under COFEPOSA: Under
the Conservation of Foreign Exchange and Prevention of Smuggling Activities
Act, 1974 (COFEPOSA), this Directorate is empowered to sponsor cases of
preventive detention with regard to contraventions of FEMA.
The ED has a pan-Indian character with
field offices spread over various states and regions. There is a separate legal
wing headed by a Prosecutor, with two deputy legal advisers and 10 assistant
legal advisers. The Directorate was restructured in March 2011 increasing the
number of offices from 22 to 39 and the total strength of officers and staff to
2063. After the process of restructuring is completed, the Directorate will
have headquarters in New Delhi, five regional offices at New Delhi, Mumbai,
Kolkata, Chennai and Chandigarh, besides 11 zonal offices and 22 sub-zonal
offices at various places.
The main functions of the Directorate are
as under—
i.To
initiate investigations under PMLA to ascertain whether proceeds of crime have
been generated from the Scheduled offence booked by the concerned Law
Enforcement Agency and such proceeds have been laundered. If a prima facie case
of money laundering is made out, the Directorate attaches the property derived
with/out of the proceeds of crime.
ii.
To provide and seek mutual legal assistance to/from contracting states in
respect of attachment/confiscation of proceeds of crime as well as in respect
of transfer of accused persons under PMLA.
iii.
To file prosecution complaints in the designated PMLA Court for the offence of
money laundering under PMLA.
iv. To collect, develop and disseminate
intelligence relating to contraventions of FEMA. The intelligence inputs are
received from various sources such as Central and State Intelligence agencies,
RBI, complaints, information gathered by officers, etc.
v.
To investigate suspected contraventions of the provisions of FEMA relating to
activities such as hawala, unauthorized dealings in foreign exchange,
non-realization of export proceeds, unauthorized retention of funds abroad
including bank accounts, unauthorized acquisition of immovable properties
abroad, contraventions relating to Foreign Direct Investments (FDIs), External
Commercial Borrowings (ECBs), Foreign Currency Convertible Bonds (FCCBs), etc.
vi.
To adjudicate cases of violations of the erstwhile FERA, 1973 and FEMA, 1999.
vii.
To realize penalties imposed on conclusion of adjudication proceedings.
viii.
To handle appeals and prosecution cases under the erstwhile FERA, 1973.
ix.
To handle appeals under FEMA.
x. To process and recommend cases for
detention under the Conservation of Foreign Exchange and Prevention of
Smuggling Activities Act (COFEPOSA) in respect of contraventions under FEMA.
Some of the important provisions are discussed below:
1. Attachment
of property involved in money laundering [Section 5]
Where the Director or any other officer not
below the rank of Deputy Director authorised by the Director, has reason to
believe (the reason for such belief to be recorded in writing), on the basis of
material in his possession, that — any person is in possession of any proceeds
of crime and such proceeds of crime are likely to be concealed, transferred or
dealt with in any manner which may result in frustrating any proceedings
relating to confiscation of such proceeds of crime, he may, by order in
writing, provisionally attach such property for a period not exceeding 180 days
from the date of the order.
No
such order of attachment should be made unless, in relation to the scheduled
offence, a report has been forwarded to a Magistrate under section 173 of the
Code of Criminal Procedure, 1973, or a complaint has been filed by a person
authorised to investigate the offence mentioned in that Schedule, before a
Magistrate or court for taking cognizance of the scheduled offence, as the case
may be, or a similar report or complaint has been made or filed under the
corresponding law of any other country.
Notwithstanding
anything contained above, any property of any person may be attached if the
Director or any other officer not below the rank of Deputy Director authorised
by him has reason to believe (the reasons for such belief to be recorded in
writing), on the basis of material in his possession, that if such property
involved in money laundering is not attached immediately, the non-attachment of
the property is likely to frustrate any proceeding under this Act.
Every
order of attachment will cease to have effect after the expiry of 180 days from
the date of the order or on the date of the order made by the Director,
whichever is earlier.
The
Director or any other officer who provisionally attaches the property should,
within a period of 30 days from such attachment, file a complaint, stating the
facts of such attachment before the Adjudicating Authority.
Section
8(3) is reproduced herein –
"3)
Where the Adjudicating Authority decides under sub-section (2) that any
property is involved in money-laundering, he shall, by an order in writing,
confirm the attachment of the property made under subsection (1) of section 5
or retention of property or record seized or frozen under section 17 or section
18 and record a finding to that effect, whereupon such attachment or retention
or freezing of the seized or frozen property] or record shall—
(a)
continue during investigation for a period not exceeding three hundred and
sixty-five days or the pendency of the proceedings relating to any offence
under this Act before a court or under the corresponding law of any other
country, before the competent court of criminal jurisdiction outside India, as
the case may be; and
(b)
become final after an order of confiscation is passed under sub-section (5) or
sub-section (7) of section 8 or section 58B or sub-section (2A) of section 60
by the Special Court;
Explanation.—For
the purposes of computing the period of three hundred and sixty-five days under
clause (a), the period during which the investigation is stayed by any court
under any law for the time being in force shall be excluded."
The
confirmed attached immovable properties are such immovable properties, which
have been attached by Directorate of Enforcement and confirmed by the Ld.
Adjudicating Authority.
Once
a provisional attachment order has been confirmed the Directorate issues notice
to take the possession of the property under Section 8(4) of the PMLA, 2002.
2.Calling
for additional Information[Section 12A]
Section
12A empowers the Director to call for additional information from reporting
entity, which are obligated to maintain the confidentiality.
3. Powers of Director to make
Inquiries & Impose[Section 13]
Section
13 of PMLA empowers Director, FIU-IND to enquire into cases of suspected
failure of compliance with the provisions of PMLA and impose sanctions
including monetary penalty on reporting entity or its designated director or
any of its employees.
·
Make inquiry as he
thinks fit to fulfil obligations of Reporting Entity
·
Order an audit by an
Accountant from panel of the accountants maintained by the Central Government
·
In case of failure by
Reporting Entity, the Director may:
(a) Issue
warning in writing
(b) Direct
for compliance
(c) Direct
for sending report in prescribed manner
(d) Impose
monetary penalty from Rs. 10,000 to Rs. 1 Lac for each failure upon Reporting
Entity, or its designated director on the Board or an employee
4. No
Liability to Civil courts for discharging duty by RE[Section 14]
Section
14 of the PMLA provides that the reporting entity, its Directors and employees
shall not be liable to any civil or criminal proceedings against them for
furnishing information to FIU-IND.
5. Power
to arrest [Section 19]
Section 19 of the Prevention of Money
Laundering Act 2002 (PMLA) empowers authorized officials of the Directorate of
Enforcement (ED) to arrest persons based on the material in their possession,
providing a reasonable basis to suspect that an individual has committed an
offence punishable under the law
Section 19 requires the following:
1. The
arrest has to be on the basis of material in possession with the ED
2. There
is reason to believe that the accused is guilty of the offence, with the reason
recorded in writing
3. The
grounds for arrest should be communicated with the accused
As held in Senthil Balaji v State
represented by Deputy Director (2023), which states that all
criteria under Section 19 have to be satisfied. “Any non-compliance of the
mandate…would vitiate the very arrest itself”, the judgement stated. “These
four have to be objectively evaluated by the judge.”
The
“reason to believe” conundrum
The threshold should be “above suspicion.” He referred to the Income Tax Act
and the Indian Penal Code, 1860 (IPC) which have their own interpretation for
“reason to believe.” In criminal law, he pointed out, the interpretation
carries different meanings at the stage of granting a bail to an accused and
arresting them.
6. Burden of proof [Section -24]
PMLA provides for raising presumptions qua certain
facts in issue under Sections 22 and 23 and shifts burden to proof onto the
accused to prove that the property recovered from the accused is untainted
under Sec. 24 PMLA. This shift in the burden of proof under Section 24 PMLA is in
consonance with Section 106 of Indian Evidence Act as the facts relating
thereto would be within the specific knowledge of the accused.
Parliament deemed it fit to amend it vide the PMLA (Amendment) Act, 2012 and amended it as follows: “24. Burden of proof—In any proceeding relating to proceeds of crime under this Act,—
(a) in the case of a person charged with the offence of money-laundering under section 3, the Authority or Court shall, unless the contrary is proved, presume that such proceeds of crime are involved in money-laundering; and
(b) in the case of any other person the Authority or Court, may presume that such proceeds of crime are involved in money-laundering.”
It is noteworthy that though the Courts have
upheld the validity of provisions similar to Section 24 PMLA, however, they
have at the same time held that in such statutes providing for such a reverse
burden, it is incumbent for the prosecution to first prove the foundational
facts beyond any reasonable doubt, which would in itself be subjected to
greater scrutiny, before the presumption can be raised against an accused
. The Courts have further gone onto hold that even in such situations it is
incumbent upon the prosecution to prove the guilt of the accused
and it cannot be absolved of this responsibility. Specifically in the
context of Section 24 PMLA, various High Courts have held that the presumption
contained therein is not to be interpreted that the property concerned is
“proceeds of crime”, it can only be held so once it is proven by the
prosecution, and it is only upon such proof can the same be taken to be
involved in money laundering. It has been further held that Section 24 PMLA
does not contain a presumption as to the knowledge of the accused
of the “proceeds of crime”, which still has to be demonstrated by the
prosecution. In fact, the High Court of Kerala has gone a step further and held
in Kavitha G. Pillai v. The Joint Director (supra) that the presumption
contained is only that the same are “proceeds of crime” and the question of
whether the same are actually ill-gotten can only be determined upon the proof
of the scheduled offence.
To appreciate evidence for offence punishable under S. 4 PMLA it is important to understand “what is evidence” and what is admissible and relevant evidence under PMLA. General rule of the extent of proof in a criminal trial is that the prosecution has to establish that the offence alleged to have been committed by the accused is proved beyond reasonable doubt to hold accused guilty of such offence. However some of the provisions of IEA raise certain presumptions and shifts the burden of proof on to accused in certain circumstances. Burden of proving fact especially within knowledge.—When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.
Examples
(a) When a person does an act with some intention other than that which the character and circumstances of the act suggest, the burden of proving that intention is upon him.
(b) A is charged with travelling on a railway without a ticket. The burden of proving that he had a ticket is on him
PMLA
provides for raising presumptions qua certain facts in issue under Sections 22
and 23 and shifts burden to proof onto the accused to prove that the property
recovered from the accused is untainted under Sec. 24 PMLA. This shift in the
burden of proof under Section 24 PMLA is in consonance with Section 106 of
Indian Evidence Act as the facts relating thereto would be within the specific
knowledge of the accused.
The
word ‘evidence’ is derived from the latin word ‘evident’ or ‘evidere’ which
means “to show clearly, to discover clearly, to ascertain , to prove” Three
main principles for law of evidence are: 1. Evidence must be confined to the
matter in issue. 2. Hearsay evidence must not be admitted except if
specifically permitted. 3. The best evidence must be given in all the cases.
7. Bail under PMLA 2002 [Section-45]
Section 45 of the Prevention of
Money Laundering Act (PMLA) of 2002 sets out the conditions for granting bail
to people accused of money laundering. These conditions are known as
"twin conditions" and are stricter than the general bail laws:
·
The accused must prove their
innocence
·
The accused must convince the judge
that they are unlikely to commit any other offenses while on bail
Supreme Court has recently passed a judgement upholding the PMLA
and jurisdiction of ED. While section 45 of the PMLA deals with the aspect of
offences to be cognizable and non-bailable, section 436A of the CrPC deals with
the maximum period for which an undertrial prisoner can be detained. SC also
said that Enforcement Case Information Report (ECIR) cannot be equated with an
FIR and the supply of ECIR to the accused is not mandatory.
The burden of proof is on the accused to show that there is
no prima facie case against them. The Supreme Court has reserved judgment on the applicability
of Section 45 bail. In 2022, the Supreme Court also considered the
constitutionality of Section 45 in the case Vijay Madanlal Choudhary v. Union
of India. A three-judge bench ruled that amendments made in 2018 and
2019 addressed the defects noted in the Nikesh Tarachand Shah case.
8. Powers of authorities regarding summons, production of
documents and to give evidence, etc [Section 50]
Section
50 of the Prevention of Money Laundering Act (PMLA), 2002, details the powers
of authorities in issuing summons, producing documents, and giving evidence. It
equates the Director's powers to those of a civil court under the Code of Civil
Procedure, 1908, for matters like discovery and inspection, enforcing
attendance, compelling production of documents, and issuing commissions. These
powers are for section 13 of the PMLA. Section 50(2) empowers the Director and
other officers to summon any person during any investigation or proceedings
under the PMLA. Rule 2(p) and Rule 11 of PML Rules, 2005 further specify these
powers. Section 50(3) mandates that all summoned persons must attend in person
or through authorised agents, state the truth upon examination, and produce
required documents. Section 63(2) imposes a penalty for non-compliance. Section
50(4) deems every proceeding under section 50(2) and section 50(3) as a
judicial proceeding as per sections 193 and 228 of the Indian Penal Code, 1860.
Section 50(5) allows any officer referred to in section 50(2) to impound and
retain any records produced before him in any proceedings under Act 15 of 2003.
There are safeguards in place to prevent misuse of this power.
(a) Discovery and inspection;
(b) Enforcing the attendance of any person,
including any officer of a [reporting entity] and examining him on oath;
(c) Compelling the production of records;
(d) Receiving evidence on affidavits;
(e) Issuing commissions for examination of
witnesses and documents; and
(f) Any other matter which may be
prescribed.
(2) The Director,
Additional Director, Joint Director, Deputy Director or Assistant Director
shall have power to summon any person whose attendance he considers necessary
whether to give evidence or to produce any records during the course of any
investigation or proceeding under this Act.
(3) All the persons
so summoned shall be bound to attend in person or through authorised agents, as
such officer may direct, and shall be bound to state the truth upon any subject
respecting which they are examined or make statements, and produce such
documents as may be required.
(4) Every proceeding under sub-sections (2) and (3) shall be deemed to be a judicial proceeding within the meaning of section 193 and section 228 of the Indian Penal Code (45 of 1860).
(5) Subject to any rules made in this behalf by the Central Government, any officer referred to in sub-section (2) may impound and retain in his custody for such period, as he thinks fit, any records produced before him in any proceedings under this Act:
Provided that an Assistant Director or a Deputy Director shall not--
(a) Impound any records without recording his reasons for so doing; or
(b) Retain in his custody any such records for a period exceeding three months, without obtaining the previous approval of the [Joint Director]
Powers under Section 50 of the PMLA are equivalent to the powers of a civil court
The Supreme Court affirmed in the case of Vijay
Madanlal Chaudhary v. Union of India,
that the powers of ED under Section 50 of PMLA, 2002 are equivalent to those of
a civil court under the Code of Civil Procedure, 1908. The Supreme Court, after
observing that "the process envisaged by Section 50 of the 2002 Act is in
the nature of an inquiry against the proceeds of crime and is not "investigation"
in the strict sense of the term for initiating prosecution; and the Authorities
under the 2002 Act (referred to in Section 48), are not police officers as
such," rejected the challenge to the constitutionality of Section 50 of
PMLA.
The same view was echoed by the Delhi High Court in Satyendar
Kumar Jain v. Directorate of Enforcement by
holding that Section 50(1) of the PMLA, 2002 confers certain powers upon the
Director for the purpose of Section 13 of the PMLA as are vested in a civil
court under the Civil Procedure Code, 1908 while trying a suit in respect of
the matters enumerated therein. Section 50(2) confers powers upon the Director,
Additional Director, Joint Director, Deputy Director or Assistant Director to
summon any person whose attendance they consider necessary whether to give
evidence or to produce any records during the course of any investigation or
proceeding under this Act. Section 50(3) of the PMLA provides that all such
summoned persons shall be bound to attend in person or through an authorised
officer and shall further be bound to state the truth upon any subject
respecting which they are examined or make statements and produce such
documents as may be required. Section 50(4) of PMLA provides that proceedings
under sub-Section (2) and (3) shall be deemed to be a judicial proceeding with
the meaning of Section 193 and Section 228 of the Penal Code, 1860.
The Andhra Pradesh High Court in Dalmia Cement
(Bharat) Limited v. Assistant Director of Enforcement
Directorate, while dealing with the purpose of investigation under Section
50(2) noted that it is essentially for collecting evidence with regard to the
involvement of a person or about existence of certain facts concerning proceeds
of crime or process or activity connected with proceeds of crime, such inquiry
or investigation could be commenced based on information to be recorded in the
internal document maintained by the authority authorised also described as
ECIR.
Person summoned under Section 50 cannot be treated as an
accused
The Madras High Court in B. Narayanaswamy v. Deputy
Director, observed that at the time of making an enquiry under Sections
50(2) and 50(3) of the said Act, the persons so summoned unless are found to
have been involved in the crime of Money Laundering, cannot be treated as an
accused at the stage of enquiry itself.
Section 50 of PMLA excludes power to arrest
Recently again, the same question arose before the Delhi
High Court in Ashish Mittal v. Directorate Of
Enforcement & Anr. ,
wherein the Petitioner, on receiving summons under Section 50(2) and 50(3) of
the PMLA approached the High Court seeking quashing of an ECIR as the
Petitioner apprehended that he will be illegally detained/arrested by the ED.
While rejecting the said Petition, the Delhi High Court
reiterated that the power of arrest under Section 19 of the PMLA is not
untrammelled. The Court observed that authorities do not have the power to
arrest on their whims and fancies. There is a three-fold requirement that must
be complied with before arresting a person: Firstly, the Director must
entertain a reasonable belief that the person arrested is guilty of an offence
under the PMLA and not under any other enactment; Secondly, the reasons for
such belief must be recorded in writing; and Thirdly, such belief must be based
on material that is in the Director's possession.
The Delhi High Court further observed that Section 50 of the
PMLA confers upon specified officers of the ED the powers vested in a civil
court trying a suit, including the power to enforce the attendance of any
person for recording statements on oath, with a mandate that any person so
summoned shall be bound to attend, to answer and make statements truthfully; to
compel discovery, inspection and production of documents and records; and to
impound and retain records, by giving reasons in writing and underlined the
fact that the power to arrest is conspicuously absent in Section 50 of the
PMLA. The Court further observed that though Section 19 of the PMLA empowers
designated officers of the ED to arrest any person, subject to satisfying the
conditions mentioned in that provision, it is clear that the power to arrest
does not reside in Section 50 nor does it arise as a natural corollary of
Summons issued under Section 50.
Under
Section 50 Director, FIU-IND has powers of a civil Court under the Code of
Civil Procedure, including powers to enforce attendance of any person, compel
production of records, receive evidence on affidavits and issuing commission
for examination of witnesses.
9. Support to Director(ED)[Section 54]
Section 54 empowers and requires various officers and
other functionaries to provide necessary assistance to Director, FIU-IND in the
enforcement of his statutory functions under the PMLA.
10. Dissemination of Information [Section 66]
Section 66 provides for the dissemination of
information by FIU-IND to any officer, authority or body performing any
function under any law relating to imposition of any tax, duty or cess or to
dealing in foreign exchange or to prevention of illegal trafficking in drugs or
to any officer, authority or body notified by the Central Government.
11. Recovery of Fines Imposed by Director(ED)[Section 69]
Section 69 enables the recovery of fines imposed by
the Director, if not paid within six months from the date of imposition of
fine; and the powers of a Tax Recovery Officer under the Income-tax Act, 1961
can be exercised for this purpose. The fines so imposed are recovered in the
same manner as prescribed in Schedule II of the Income-tax Act, 1961 for the
recovery of arrears.
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