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Supreme Court Limits Enforcement Directorate’s Arrest Powers Under PMLA

The Supreme Court has ruled that the Enforcement Directorate (ED) loses its authority to arrest an accused once a special court takes cognisance of a chargesheet filed under the Prevention of Money Laundering Act (PMLA). This judgment restricts the ED’s power to execute arrests and underscores the importance of protecting personal liberty.

Relevance:

GS II: Polity and Governance

Dimensions of the Article:

  1. Recent Supreme Court Ruling on PMLA
  2. Prevention of Money Laundering Act (PMLA), 2002
  3. Recent Changes Made Under the PMLA

Recent Supreme Court Ruling on PMLA

Origin of the Judgment:

  • The ruling originated from an appeal by the Enforcement Directorate (ED) against a Punjab and Haryana High Court decision that denied anticipatory bail.

Key Issues Examined:

  • Whether an accused can seek bail under the regular provisions of the Code of Criminal Procedure (CrPC).
  • If so, whether the bail application must also meet the twin conditions under Section 45 of the Prevention of Money Laundering Act (PMLA).
  • Consideration of whether an accused not arrested during the PMLA investigation must meet stringent PMLA bail conditions upon appearing in court after a summons or warrant.
Supreme Court Observations:

Status of Accused Appearing on Summons:

  • An accused who appears before a special court in response to a summons is not considered in custody and thus does not need to apply for bail under the stringent PMLA conditions.

ED’s Custody Application:

  • The ED must file a separate application to seek custody of the accused after they appear in court, providing specific reasons for the need for custodial interrogation.

Protection of Personal Liberty:

  • This ruling underscores the protection of the fundamental right to personal liberty.

Surety and Bonds:

  • The special court can require the accused to provide surety or bonds as per Section 88 of the CrPC, which is not equivalent to granting bail under PMLA’s stringent conditions.

Procedure for Non-appearance:

  • If an accused fails to appear despite being summoned, the court can first issue a bailable warrant. If non-appearance continues, a non-bailable warrant can be issued.

ED’s Arrest Powers:

  • The ED retains the authority to arrest individuals not named as accused in the initial PMLA complaint, provided proper arrest procedures under Section 19 of the PMLA are followed.
Twin Conditions of Bail Under PMLA

Under Section 45 of the Prevention of Money Laundering Act (PMLA), the following twin conditions must be met for an accused to be granted bail:

Burden of Proving Innocence:

  • The accused must demonstrate their innocence to the court. This means the burden of proof rests on the accused to show that there are reasonable grounds to believe they are not guilty of the offense they are charged with.

Ensuring No Offences While on Bail:

  • The accused must convince the court that they will not commit any offense while out on bail. This requires a strong assurance to the judge that the accused will not engage in any criminal activity if released.

Prevention of Money Laundering Act (PMLA), 2002

  • According to the Prevention of Money Laundering Act (PMLA) 2002, Money laundering is concealing or disguising the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources.
    •  It is frequently a component of other, much more serious, crimes such as drug trafficking, robbery or extortion.
  • Money laundering is punishable with rigorous imprisonment for a minimum of 3 years and a maximum of 7 years and Fine under the PMLA.
  • The Enforcement Directorate (ED) is responsible for investigating offences under the PMLA.
  • The Financial Intelligence Unit – India (FIU-IND) is the national agency that receives, processes, analyses and disseminates information related to suspect financial transactions.
  • After hearing the application, a special court (designated under the Prevention of Money Laundering Act PMLA, 2002) may declare an individual as a fugitive economic offender and also confiscate properties which are proceeds of crime, Benami properties and any other property, in India or abroad.
  • The authorities under the PMLA, 2002 will exercise powers given to them under the Fugitive Economic Offenders Act.
    • These powers will be similar to those of a civil court, including the search of persons in possession of records or proceeds of crime, the search of premises on the belief that a person is an FEO and seizure of documents.

Recent Changes Made Under the PMLA

The Indian government has made several changes to the Prevention of Money-Laundering Act (PMLA) to plug loopholes and comply with Financial Action Task Force (FATF) regulations. Some of the key changes are:

  • More disclosures for non-governmental organizations by reporting entities like financial institutions, banking companies, or intermediaries.
  • Definition of “politically exposed persons” (PEPs) as individuals who have been entrusted with prominent public functions by a foreign country, which brings uniformity with a 2008 Reserve Bank of India (RBI) circular for Know Your Customer (KYC) norms and anti-money laundering standards for banks and financial institutions.
  • Inclusion of practicing chartered accountants, company secretaries, and cost and works accountants carrying out financial transactions on behalf of their clients under the ambit of the money laundering law.
  • Widening the list of non-banking reporting entities to allow 22 financial entities like Amazon Pay (India) Pvt. Ltd, Aditya Birla Housing Finance Ltd, and IIFL Finance Ltd. to verify the identity of their customers via Aadhaar under the ambit of the money laundering law.

The financial transactions covered under the money laundering law include buying and selling of any immovable property, managing client money, securities, or other assets, management of bank, savings, or securities accounts, organization of contributions for the creation, operation, or management of companies, creation, operation, or management of companies, limited liability partnerships, or trusts, and buying and selling of business entities.

-Source: The Hindu


June 2024
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