The Enforcement Directorate has been conferred with unlimited powers under law, oh, everyone knows that.
One such unlimited power is the power of the Enforcement Directorate to enter ones premises, search and seize any property / record, including even irrelevant documents, blank letter heads, etc., all under the pretext of relevance to the never ending investigation(s).
While doing so, what is lost sight of by the Enforcement Directorate is that, though having infinite powers, it is also bound by what other agencies refer to as ‘procedure established by law‘. There have been several cries for placing the Enforcement Directorate within the bounds of law, but, to vain.
Source of Power:
The Enforcement Directorate draws its power to conduct such search and seizure to Section 17 of the Prevention of Money Laundering Act, 2002 (hereinafter referred to as “PMLA, 2002”). The relevant portion of the said Section reads as under:
17. Search and seizure.—(1) Where the Director or any other officer not below the rank of Deputy Director authorised by him for the purposes of this section, on the basis of information in his possession, has reason to believe (the reason for such belief to be recorded in writing) 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 relating to money-laundering, [or]
(iv) is in possession of any property related to crime,
then, subject to the rules made in this behalf, he may authorise any officer subordinate to him to—
(a) 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;
(b) break open the lock of any door, box, locker, safe, almirah or other receptacle for exercising the powers conferred by clause (a) where the keys thereof are not available;
(c) seize any record or property found as a result of such search;
(d) place marks of identification on such record or property, if required or make or cause to be made extracts or copies therefrom;
(e) make a note or an inventory of such record or property;
(f) 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 this Act :
(1-A) Where it is not practicable to seize such record or property, the officer authorised under sub-section (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned :
Provided that if, at any time before its confiscation under sub-section (5) or sub-section (7) of Section 8 or Section 58-B or sub-section (2-A) of Section 60, it becomes practical to seize a frozen property, the officer authorised under sub-section (1) may seize such property.
Preconditions to exercise such power:
As can be seen from the above provision, the pre-requisite for conducting search in anyone’s premises is:
(a) The concerned officer to have the requisite ‘reason to believe‘,
(a-i) Such ‘reason to believe‘ to be based on the basis of “information” in the possession of the concerned officer,
(a-ii) Such ‘reason to believe‘ to be recorded in writing,
(b) that “any person” has either committed any act which constituted money-laundering, or is in possession of proceeds of crime involved in money laundering or is in possession of any ‘records’ relating to money laundering or in possession of any ‘property’ related to crime.
Note: The first two conditions mentioned in (b) above are related to persons directly involved in the offence of money laundering, however, the last two conditions may or may not relate to one directly involved in money-laundering.
Breach No. 1
The first breach is of entering into anyone’s premises without there being any actual reasons to believe.
Once such ‘reason to believe’ exists, then the concerned authorized officer, inter alia, can enter and search any premises and seize such record or property as a result of such search.
However, in majority of cases, the Enforcement Directorate records pro-forma reasons to believe, by merely reproducing the provisions of law, without in actuality there being any real reasons to believe.
Such pro-forma recording of reasons to believe, only for the sake of it, does not fulfill the requirement of law. As the powers under Section 17 PMLA, 2002 are very extreme in nature, therefore it is a mandatory requirement under law that the Enforcement Directorate should have “actual” reasons to believe, rather than mere “formality” reasons to believe.
Breach No. 2
The second breach committed is of not having the search witnessed by permitted search witnesses
The search conducted by the Enforcement Directorate under Section 17 (1) PMLA is subject to the rules made for the said purpose. The said Rules are “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” (hereinafter referred to as the “PMLA Search Rules, 2005“).
Note: The said rules were notified Vide Ministry of Finance (Deptt. of Revenue), Noti. No. G.S.R. 445(E), dated July 1, 2005, published in the Gazette of India, Extra., Part II, Section 3(i), dated 1st July, 2005, pp. 56-68, No. 292.
Rule 3 (3) of the PMLA Search Rules, 2005 provides that the search is to be witnessed by two or more respectable persons of the locality in which the building or the place to be searched is situated. The relevant portion of the same rule reads as under:
(3) Before making a search, the authority, shall—
(a) where a building or place is to be searched, call upon two or more respectable persons of that locality in which the building or place to be searched is situated; and
(b) where a vessel, vehicle or aircraft is to be searched, call upon any two or more respectable persons, to attend and witness the search and may issue an order in writing to them or any of them so to do.
However, again, in majority of cases, the search is made to be witnessed by witnesses who are not from the “locality“. Be it noted that the law does not merely require that the witness should be from the ‘locality’, but that the witness should be out of the “respectable persons” therefrom.
It is important to point out that similar requirement is provided under Section 102 Cr.P.C., and that in terms of Rule 5 of the PMLA Search Rules, 2005, the provisions of Code of Criminal Procedure, 1973 shall apply, in so far as they are not inconsistent with the provisions of the Act relating to search and seizure. Similar is the mandate in terms of Section 65 PMLA, 2002.
Such breach of the mandatory rule, which is in the form of a significant safe guard against the extreme power of search and seizure by the Enforcement Directorate is seldom complied with, making the whole search and consequence seizure illegal and vitiated in the eyes of law.
Breach No. 3
The third breach is of not forwarding the copy of material in ED’s possession to the Adjudicating Authority.
After the Enforcement Directorate has conducted the search and seizure, thereafter, in order to maintain transparency and as an essential check and balance, the Enforcement Directorate is required to ‘forward a copy of the reasons so recorded along with material in his possession‘ (the material being the one referred to in sub-section (1) of Section 17 PMLA, 2002). The same is so provided in Section 17 (2) PMLA, 2002, which reads as under:
(2) The authority, who has been authorised under sub-section (1) shall, immediately after search and seizure or upon issuance of a freezing order, forward a copy of the reasons so recorded along with material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner, as may be prescribed and such Adjudicating Authority shall keep such reasons and material for such period, as may be prescribed.
The forwarding of the reasons and material is to be in the manner so prescribed, which is so prescribed in the PMLA Search Rules, 2005.
Under the said Rules, the definition clause provides for the following definition:
(j) “material for the purpose of sub-section (1-A) and sub-section (2) of Section 17 of the Act” means the material in possession of the authority, referred to in clause (c) of sub-rule (1) of Rule 2, after search, seizure or freezing under sub-section (1) of Section 17 respectively of the Act, including a report forwarded to a Magistrate under Section 157 of the Code of Criminal Procedure, 1973 (2 of 1974) or a complaint filed before a Magistrate or a court by a person authorized to investigate the scheduled offence for taking cognizance of such 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 submitted by an officer authorized 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 authorized by the Central Government, by notification, for this purpose
Rule 8 of the PMLA Search Rules, 2005 may also be referred to in this regard.
However, the material so seized by the Enforcement Directorate is not known to be forwarded to the Enforcement Directorate nor the same is attached with the Original Application subsequently filed under Section 17 (4) PMLA, 2002, and that the adjudication under Section 8 PMLA, 2002 takes places in absence of supply of or adjudication over such material.
Breach No. 4
The fourth breach is of continuing to retain property without any order under Section 20 (1) and Section 21 (1) PMLA, 2002
The Enforcement Directorate continues to retain the seized property, without an order passed under Section 20 (1) and Section 21 (1) PMLA, 2002. The said Sections read as under:
20. Retention of property.—(1) Where any property has been seized under Section 17 or Section 18 or frozen under sub-section (1-A) of Section 17 and the officer authorised by the Director in this behalf has, on the basis of material in his possession, reason to believe (the reason for such belief to be recorded by him in writing) that such property is required to be retained for the purposes of adjudication under Section 8, such property may, if seized, be retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred and eighty days from the day on which such property was seized or frozen, as the case may be.
21. Retention of records.—(1) Where any records have been seized, under Section 17 or Section 18 or frozen under sub-section (1-A) of Section 17 and the Investigating Officer or any other officer authorised by the Director in this behalf has reason to believe that any of such records are required to be retained for any inquiry under this Act, such records may if seized, be retained or if frozen, may continue to remain frozen, for a period not exceeding one hundred and eighty days from the day on which such records were seized or frozen, as the case may be.
However, in a majority of cases, the Enforcement Directorate continues to retain the property without placing on record or supplying such order to the aggrieved person, giving reason to believe that no such order has been passed.
FOLLOWNG PROCEDURE IS MANDATORY
The Hon’ble Supreme Court in OPTO Circuits (India) Ltd. v. Axis Bank, (2021) 6 SCC 707 has held that the Enforcement Directorate is required to follow the procedure prescribed by law. It was held as under:
14. This Court has time and again emphasised that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner alone and in no other manner. Among others, in a matter relating to the presentation of an election petition, as per the procedure prescribed under the Patna High Court Rules, this Court had an occasion to consider the Rules to find out as to what would be a valid presentation of an election petition in Chandra Kishore Jha v. Mahavir Prasad [Chandra Kishore Jha v. Mahavir Prasad, (1999) 8 SCC 266] and in the course of consideration observed as hereunder : (SCC p. 273, para 17)
“17. … It is a well-settled salutary principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner.”
Therefore, if the salutary principle is kept in perspective, in the instant case, though the authorised officer is vested with sufficient power; such power is circumscribed by a procedure laid down under the statute. As such the power is to be exercised in that manner alone, failing which it would fall foul of the requirement of complying with due process under law. We have found fault with the authorised officer and declared the action bad only insofar as not following the legal requirement before and after freezing the account. This shall not be construed as an opinion expressed on the merit of the allegation or any other aspect relating to the matter and the action initiated against the appellant and its Directors which is a matter to be taken note of in appropriate proceedings if at all any issue is raised by the aggrieved party.
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