The Supreme Court bench of Justices Abhay S. Oka and Pankaj Mithal in Future Gaming and Hotels Services Pvt. Ltd. & Anr. Vs. Directorate Of Enforcement & Ors.[1], while issuing ex-parte ad interim injunction order, has held that content from the mobile phone of the accused cannot be accessed or copied by the ED. The court further stated that summons issued under section 50 of the PMLA would be stayed to the extent that presence of the applicant is required for the purpose of extraction of data stored in the respective digital devices.
This decision aligns with several judgments delivered by both the Supreme Court and High Courts, wherein the conduct of the ED has been criticised or scrutinised. This judgment provides us an opportunity to examine the nature of the powers exercised by the ED under the PMLA particularly with respect to search and seizures.
In response to a question asked in the Parliament, the Union Ministry of Finance revealed that only 42 cases have resulted in conviction out of a total of 911 cases registered since 2019. This highlights the abysmal record of the ED in investigating money laundering offences.
Powers To Attach Property and Conduct Search And Seizure
Section 5- Attachment
Section 5 of the Prevention of Money Laundering Act, 2002, empowers the Director or an officer not below the rank of Deputy Director, authorized by the Director, to attach properties involved in money laundering. This authority is exercised when the officer has reason to believe, based on material evidence, that an individual is in possession of proceeds of crime. Furthermore, the officer must be convinced that such proceeds are likely to be concealed, transferred, or dealt with in a manner that could obstruct confiscation proceedings under the Act. The belief must be recorded in writing and cannot be based on mere assumptions.
The provisional attachment order is valid for a fixed tenure of 180 days from the date of issuance. This ensures that the attachment is temporary and subject to further judicial scrutiny. Within this period, the Director or Deputy Director is required to forward the order to the Adjudicating Authority in a sealed envelope. To maintain procedural fairness, a complaint must also be filed before the Adjudicating Authority within 30 days of the attachment. If the Adjudicating Authority does not confirm the attachment or the 180-day period expires, the attachment order ceases to operate. This framework provides a balance between preventing misuse of the provision and ensuring timely oversight.
The constitutionality of Section 5 was challenged in Vijay Madanlal Choudhary Vs. Union Of India[2], where the court clarified significant aspects of its application. It distinguished between initiating prosecution under Section 3 of the Act, which requires prior registration of a scheduled offence, and issuing a provisional attachment under Section 5, which does not mandate a pre-registered criminal case. This distinction ensures that the machinery of the Act functions without delays in securing proceeds of crime. If a scheduled offence is not registered, the authorized officer can still issue a provisional attachment while informing the jurisdictional police under Section 66(2) of the Act. The police must then act appropriately to investigate or register the offence. Failure by the police to respond can prompt the authorized officer to seek legal remedies to ensure that the proceeds of crime are secured, and culprits are brought to justice.
The 2015 amendment to Section 5 removed the requirement of substantial progress in the investigation of the scheduled offence before issuing an attachment order. This addressed delays and allowed immediate action to secure proceeds of crime. Subsequently, the 2018 amendment introduced additional safeguards, including a fixed tenure of 180 days for the attachment order and mandatory procedural timelines to ensure accountability and fairness.
Having noted the sufficient safeguards provided in the provision itself, the court upheld the constitutionality of this provision.
Section 17- Search And Seizure
Further, section 17 provides that where director on the basis of information has reason to believe with such reason to believe to be recorded in writing that any person is accused of committing a scheduled offence or in possession of the proceeds of crime involved in money laundering or in possession of any records relating to money laundering, he may pass an order for a search to be conducted by any officer subordinate to him and to seize any property or records as a result of such search.
The constitutionality of this provision was also challenged before the Supreme Court in Vijay Madanlal Choudhary (supra) on the grounds that the deletion of the safeguard requiring the filing of a complaint or chargesheet in the predicate offence before conducting a search was unconstitutional. It was argued that this amendment removed critical procedural protections and that the power of search and seizure under the PMLA was exercised without the safeguards provided under the Code of Criminal Procedure, 1973 (now the Bharatiya Nagarik Suraksha Sanhita, BNSS), such as the registration of a formal First Information Report (FIR) or the filing of a complaint in connection with the scheduled offence.
The Supreme Court, however, rejected these arguments. It upheld the constitutionality of Section 17, emphasizing the safeguards embedded within the PMLA. The Court observed that the power of search and seizure under the Act can only be exercised by the Director or an officer not below the rank of Deputy Director, duly authorized by the Director. These high-ranking officers are required to form their opinion based on material in their possession and must have recorded reasons to believe that an offence of money laundering has been committed or that proceeds of crime are involved. These reasons must be documented in writing and forwarded contemporaneously to the Adjudicating Authority along with the supporting material. The Adjudicating Authority is mandated to preserve these documents in a sealed envelope for a duration prescribed under the rules, ensuring transparency and accountability.
The Court further highlighted that the PMLA, as a special statute, prevails over other laws currently in force by virtue of Section 71 of the Act. This principle is consistent with Section 5 of the CrPC (now BNSS), which states that unless expressly provided otherwise, the provisions of the CrPC shall not affect any special or local law in force or any special powers or procedures prescribed by such law.
The distinction between the investigative powers under the PMLA and the CrPC was also underscored by the Court. Unlike the CrPC, where any police officer, including a Head Constable, can conduct searches or seizures based merely on allegations or suspicions of a scheduled offence, the PMLA restricts this authority to senior officials with specific statutory responsibilities. This differentiation ensures that the power under the PMLA is exercised judiciously and with due regard to procedural safeguards. With this, the challenge to this provision was also repelled.
Way Forward
Although, the Supreme Court has upheld drastic powers given to the officers of the ED under the PMLA, the ED has drawn flak from the top court as well as by high court for acting contrary to the statute.
The court’s expectation that actions taken under the PMLA by senior officers serve as sufficient safeguards against misuse or abuse of the sweeping powers granted to them does not inspire confidence. In a recent judgment titled Pankaj Bansal v. Union of India[3], the Supreme Court itself has criticized ED officers for their conduct in effecting the arrest of the accused. The court said that “The ED mantled with far-reaching powers under the stringent Act of 2002, is not expected to be vindictive in its conduct and must be seen to be acting with utmost probity and with the highest degree of dispassion and fairness.”
There are numerous judgments in which the conduct of officers has been questioned by the courts. It remains to be seen whether, in the future, these officers will uphold the solemn purpose of preventing money laundering while respecting the entrenched liberties of individuals guaranteed under the Constitution.
[1] Writ Petition(s)(Criminal) No(s). 515/2024 [2] 2022 SCC OnLine SC 929. [3] 2023 SCC OnLine SC 1244.
