Enforcement Directorate: De Novo Zeus in Investigation and Law-Enforcement

King Of Gods and Men:

Zeus is considered to be the most powerful god in Greek mythology. The myriad of powers at his disposal made him a force to reckon with. Zeus’s most powerful weapon was his ability to throw lighting thunderbolts while riding on his winged horse under the name of “Pegasus”. As such, it is rather reasonable for Zeus to be the most powerful since he is also referred to as the King of Gods.

Much like Zeus, the Enforcement Directorate (“ED”) has garnered multitude of powers by the dint of legislative intent and by the stroke of judicial pen. ED has occupied a larger facetime in newsrooms all over the country for its role in investigating, among other scams, the alleged money trail in the infamous “Delhi Liquor Scam”. In a nutshell, the said scam revolves around alleged receipt of kickbacks by political heavyweights from private liquor vendors in consideration for undue benefits. The ED resorted to making multiple arrests in the matter and the most recent arrest is of Mr. Arvind Kejriwal, the sitting Chief Minister of Delhi.

Know-how on the Jurisdiction of the ED:

In the interest of being well-informed and not falling prey to misinformation, it is imperative to analyze the utility of powers and functions of the ED from a legal standpoint. By and large, the ED is mandated to discharge statutory functions under three statutes namely, (i) Prevention of Money Laundering Act, 2002 (“PMLA”), (ii) Foreign Exchange management Act, 1999 and (iii) Fugitive Economic Offenders Act, 2018. For the sake of relevancy to contemporary developments, an endeavor has been made to keep the instant discussions confined to the contours of PMLA and powers entrusted with the ED qua PMLA.

It shall not be out of place to mention that PMLA is the “Pegasus” of the ED. Indeed, the jurisdiction of the ED under PMLA is dependent on two underlying factors, namely (i) Commission of scheduled/predicate offence and (ii) Existence of “proceeds of crime” (“POC”). The offence of money laundering is a ‘parasite’ offence and is not capable of surviving in isolation. It is pertinent to highlight that certain offences from a buffet of legislations are scheduled in PMLA and are referred to as “Scheduled Offences”. In the Delhi Liquor Scam Case, the Central Bureau of Investigation has registered First Information Report under the provisions of the Indian Penal Code, 1860 and the Prevention of Corruption Act, 1988 which are scheduled offences under PMLA.

The ED is then expected to trace the money trail in existence as a result of commission of scheduled/predicate offences. Legislatively speaking, the said money trail is referred to as Proceeds of Crime and is defined in section 2(1)(u) of the PMLA. In laymen terms, any property derived in pursuance of commission of a scheduled or predicate offence is POC. Thus, the litmus test to identify POC is to ascertain whether the subject property has been acquired, directly or indirectly, as a result of criminal activity relating to scheduled offences.¹

ED in Action: Is something rotten in the State of Denmark?

Now that essential pre-requisites surrounding the jurisdiction of ED are satisfied, ED registers an Enforcement Case Information Report, commonly called “ECIR”, and proceeds with investigation. Much like any other investigating agency, the ED is bestowed with powers to conduct searches and seizures, attach property linked to POC and affect arrests. As far as the powers revolving around attachment of property is concerned, ED is vested with “Zeus” like abilities to attach any property as long as it has reasons to believe that such property has been acquired through POC. In some cases, property acquired in a period prior to commission of the alleged offence is also attached by the ED.

Further, statements made to the ED in response to summons under PMLA are admissible in evidence² which marks a stark departure from established and time-tested practices of criminal jurisprudence. However, recently the Hon’ble High Court of Delhi held that confessional statements under section 50 of PMLA is not a substantive piece of evidence and requires corroboration.³

As far as arrests are concerned, the authorized officer may proceed to arrest but can only do so if he has reasons to believe basis material in his possession that the arrestee is guilty of an offence under PMLA.⁴ It should also be noted that such reasons are to be recorded in writing and form a part of the case dairy of the Investigating Officer. Further the grounds of arrest are to be ‘informed’ to the arrestee as soon as possible. For the longest time, the law was that oral communication/information regarding grounds of arrest shall suffice the requirement of section 19 of PMLA and no written communication is mandatory. However, the Hon’ble Supreme Court of India has recently concluded that the ED shall serve written grounds of arrest to the arrestee and overruled conflicting judgments from the Hon’ble High Court of Bombay and the Hon’ble High Court of Delhi.⁵

We shall now proceed to deal with the manner and mode of custody in matters concerning the ED. PMLA is a distinct legislation and calls for an overriding effect when pitted against the Code of Criminal Procedure, 1973. However, a conjoint reading of sections 65 and 71 of the PMLA demonstrates that the Code of Criminal Procedure, 1973 shall be applicable to the affairs in connection with PMLA so long as provisions of the Code aren’t inconsistent with provisions of PMLA. The law on custody is enumerated under section 167 of the Code of Criminal Procedure, 1973 but its applicability in matters of PMLA was recently up for debate before the Hon’ble Supreme Court of India.

It should be noted that it was the Hon’ble Supreme Court of India that had opined that ED officers are not “police officers” and by necessary implication, section 167(2) of the Code would not be applicable to the ED. Recently, the Hon’ble Supreme Court of India held that limb of section 167(2) of the Code of Criminal Procedure, 1973, is extendable to all investigating agencies, including the ED. The Apex Court further held that the period of fifteen days shall be calculated as a whole during the entirety of investigation.⁶

Cr.P.C. and PMLA: Clash of the Titans?

It is pertinent to highlight the issue of selective application of the Code of Criminal Procedure, 1973, to PMLA. A litigant is constrained to call upon the Hon’ble Supreme Court of India in anticipation that conflicts and inconsistencies between the Code and PLMA are resolved time and again. The Code and PLMA are expected to supplement and complement each other but varied and selective application of the Code in matters concerning PMLA, even at the instance of judiciary, warrants immediate attention of policy makers.

On the bail front, PMLA envisages stringent twin conditions which are expected to be satisfied by the accused before any bail could be granted. Over and above the requirement of the Ld. Public Prosecutor being heard, the accused is mandated to satisfy the Ld. Court that he has not committed the alleged offence and he shall not commit similar offences, if enlarged on bail.⁷ From a practical standpoint, it is a herculean task for a defense counsel to meet the rigors of the aforementioned provision, since the same is akin to conducting a mini trial at the stage of bail.

One should also not lose sight of the fact that an accused taking on the system at a pre-trial stage is a contest amongst unequals. On the one hand, you have the State backed by its mighty machinery and on the other hand you have an accused, armed with a First Information Report and a remand report. In cases involving the ED, the accused is not required to be served with a copy of the ECIR, which makes the entire process prosecution centric.

The aforementioned twin conditions constrain the accused to undertake reverse onus of proving his innocence at a pre-trial stage whereas in regular parlance it is the State that attempts to establish the guilt of the accused in order to make out a case for rejection of bail. The Hon’ble Supreme Court of India has recently held that stringent conditions for grant of bail in special statues may result in an unfortunate situation where the accused may never be enlarged on bail to begin with.⁸ The Hon’ble Supreme Court of India had struck down the aforementioned twin conditions on the ground of being unconstitutional.⁹ However, as fate would have it, the ghost of the twin conditions stands resurrected after the ruling of the Hon’ble Supreme Court of India, in the case of Vijay Madanlal Choudhury v. Union of India reported in 2022 SCC OnLine SC 929.

Conclusion: Food for Thought?

On a parting note, it becomes pertinent to address the law on the statements given by approvers and its probative value. If media reports were to be relied on, it would appear that Mr. Kejriwal has been arrested on the basis of approver statements. The law on the credibility and probative value attached to the statements made by an approver is not res integra. The Supreme Court of India, in a plethora of judgments, has held that the statement made by an approver is required to be corroborated by other witnesses. Such corroboration is necessary to establish the credibility of the approver. The moot question here is that can the liberty of the co-accused be compromised when the approver himself has been enlarged on bail?

1 Paragraph 251 of Vijay Madanlal Choudhury v. Union of India reported in 2022 SCC OnLine SC 929
2 Section 50 of the PMLA
3 Sanjay Jain v. Enforcement Directorate registered as Bail Appln. No. 3807/2022
4 Section 19 of the PMLA
5 Pankaj Bansal v. Union of India and Ors. reported in 2023 SCC OnLine 1244
6 V. Senthil Balaji v. The State registered as Criminal Appeal Nos. 2248-2285 of 2023
7 Section 45 of the PMLA
8 Mohd Muslim v. State of Delhi registered as SLP (Crl.) No. 915 of 2023
9 Nikesh Tarachand Shah v. Union of India reported in (2018) 11 SCC 1