Recently, the Supreme Court set aside the orders of the Punjab and Haryana High Court and the arrest memos for the directors of M3M, a realty group ordering their release in a money laundering case. While delivering its verdict, the bench questioned the manner of arrest and the chronology of events, pointing out the Enforcement Directorate’s negative style of functioning. It directed that the ED act with fairness and transparency in its investigations of money laundering cases and conduct itself with utmost probity and dispassion. Further it directed the ED to furnish the grounds of arrest to the accused in writing, “without exception.”
In this Weekly, let’s understand the functioning of the Directorate of Enforcement and what is the procedure of arrest it must follow under the Prevention of Money Laundering Act, 2002 (PMLA).
What is the Directorate of Enforcement?
The Directorate of Enforcement is a multi-disciplinary organization that investigates the offence of money laundering and the violations of foreign exchange laws. It comes under the purview of the Department of Revenue, Ministry of Finance, Government of India. It is the body responsible for enforcing:
PMLA was enacted to prevent money laundering and to confiscate the property derived from money laundering. The ED investigates to trace assets created from money laundering, prosecuting the offenders and confiscating the property through a Special Court.
A Special Court is a Court of Session that is designated as a Special Court by the Central Government in consultation with the High Court of the state where a case or group of cases for an offence are tried.
FEMA facilitates external trade and payments and promotes the development and maintenance of the foreign exchange market in India. ED conducts investigations, adjudicates and imposes penalties on offenders under the foreign exchange laws.
FEOA was enacted to prevent economic offenders from remaining outside the jurisdiction of Indian law and evading the legal process. ED can attach properties of these fugitive economic offenders and can help confiscate their properties for the Central Government.
What is the procedure for arrest under PMLA that the ED must comply with?
Section 19 of the PMLA deals with the ED’s power of arrest. It states that:
- If the Director, Deputy Director, Assistant Director, or any other officer authorized to arrest by the Central Government by a general or special order, has reason to believe that a person is guilty of an offense that is punishable under the PMLA, they can arrest them. The arrested person must be informed of the reason for arrest as soon as possible. The arresting officer should have the material based on which they believe someone is guilty and they should record their reasons for arrest in writing.
- The arresting officer should, immediately after making the arrest, forward a copy of the order, along with the material in their possession to the adjudicating authority, in a sealed envelope, with an index of the order and material, with each page signed and a letter marked “Confidential” and “To be opened by the addressee only”. The arresting officer should maintain registers and other records such as acknowledgement slip register, dak register and ensure that necessary entries are made in them immediately, as soon as they forward the copy of the order and the material.
The Adjudicating Authority should keep the order and material for at least 10 years or until the case is disposed of, whichever is later.
The Adjudicating Authority is appointed by the Central Government and comprises a Chairperson and two members, one each from the fields of Law, administration and finance & accounting. They hold office for a term of five years.
- Every person so arrested should be taken to a Judicial Magistrate or a Metropolitan Magistrate, within 24 hours, excluding the time taken to make the journey from the place of arrest to the Magistrate’s Court.
To read more about the law on arrest, click here.
What happened in the current case?
The ED arrested the accused in connection with a money laundering case. While detaining them, ED did not provide them with the grounds of arrest, and had an officer only verbally inform them of the reasons for arrest. In its judgment, the Supreme Court stated that the ED’s practice of not providing the grounds for arrest is inconsistent with Article 22 (1) of the Indian Constitution that states that any person who is in custody has to be informed of why they are arrested and Section 19 (1) of the PMLA that when arresting someone under this Act they must be informed of the reasons for arrest as soon as may be possible. The court declared their arrest as illegal and ordered immediate release of the two directors.
The Court also directed that a copy of the grounds for arrest should be given to the arrested person in writing, as a matter of course and without exception. In case any sensitive material is mentioned, the ED can redact those portions of the document and furnish the edited copy of the grounds of arrest to the arrested person in order to safeguard the sanctity of the investigation. The ED must follow a consistent and uniform practice while supplying grounds of arrest to all accused persons.