Limiting Overreach: Punjab & Haryana High Court’s Decisions Restricting the ED’s Arbitrary Authority

Last Updated on December 15, 2024 by Arti Kumari

In view of the extensive powers granted to the Enforcement Directorate (ED) and the strict bail requirements of the Prevention of Money Laundering Act, arrests and detentions frequently end up being punishments. In August, the Supreme Court noted that, since the modification, over 5,000 cases have been filed under the PMLA over the previous ten years, but just 40 of those cases have resulted in convictions.

The Punjab and Haryana High Court has frequently criticized the ED’s use of its extensive powers and construed the PMLA’s provisions in light of constitutional protections in its developing jurisprudence.

The Supreme Court’s ruling in “Pankaj Bansal” regarding the grounds for arrest in writing is applicable retroactively.

In Roop Bansal v. Union of India and Others, the Punjab & Haryana High Court made it clear that the ruling in the Pankaj Bansal case by the Apex Court will be applied retroactively.

While overturning the arrests of Pankaj Bansal and Basant Bansal, two other M3M directors, the Supreme Court stated that “…it would be necessary, henceforth, that a copy of written grounds of arrest is furnished to the arrested person as a matter of course and without exception.”

“Undoubtedly, the Hon’ble Apex Court held that the grounds of arrest would “henceforth” be furnished in writing to the accused, but at the same time, it declared the arrest and the consequent remand of Pankaj Bansal and Basant Bansal to be illegal,” the High Court noted in the case of Roop Bansal. The Hon’ble Apex Court would not have announced Pankaj Bansal and Basant Bansal’s arrest if the goal had been to make the condition just prospective.

In Pranav Gupta v. Union of India & Anr, the High Court ruled that informing the accused of the reason for their arrest on the same day will be considered the day of the arrest if they are taken into custody (illegal restraint) without a formal arrest memo.

The Court further stated that it would be against the statutory provisions of Section 19 of the PMLA to fail to provide the cause for arrest on the day of custody.

In this instance, the court approved the release of two pharmaceutical company directors who had been detained by ED officers in connection with a money laundering investigation.

“Any arrest shall be illegal when it directly contradicts the legal requirements mandated by the PMLA, especially under Section 19,” the High Court ruled in Neeraj Saluja v. Union of India and others. Material proof and a well-established “reason to believe” that the person is engaged in money laundering are prerequisites for this section. If these conditions are not met, there has been a serious legal infraction, and the arrest is void ab initio.

According to Section 19 of the PMLA, if an ED has “reason to believe”—the grounds for this belief must be documented in writing—that someone has committed an offense punishable by this Act, it may make an arrest based on the material in possession. However, there is a constitutional protection that requires the detainee to be informed as soon as he is taken into custody.

It emphasized that “reason to believe” is a substantive protection that supports the legitimacy of an arrest under the PMLA, not just a procedural one. Before denying someone their freedom, the evidence must be qualitatively evaluated.

PMLA Court Judges Are Not To Be Likened To The “Extended Arm Of ED”

The High Court drew attention to Special PMLA Courts’ “routine manner” of issuing custodial interrogation orders.

By routinely issuing remand orders against the suspect, it warned the judicial officers stationed in Special PMLA Courts against acting as a “extended arm” of the Enforcement Directorate, the central investigating agency.

In Balwant Singh v. Directorate of Enforcement, the court chastised the Special Court for routinely allowing the ED’s plea and approving Singh’s interrogation while he was in custody (“while negating the salutary protection emanating from Article 21 of the Constitution”).

It stated that the Special Court disregarded the rule of law and neglected to take into account the severe implications while issuing the contested remand order, which allowed the petitioner to be taken to the E.D.

A Special Court’s “routine order” authorizing ED custody for the custodial interrogation of accused Balwant Singh in a PMLA case was overturned by the judge, who stated as much.

Instructions for ED officers to adhere to the “reasonable time limit” during interrogations

In yet another instance of the Enforcement Directorate’s extensive authority, it spent more than fifteen lengthy hours questioning a Congress MLA who was an accused under the PMLA.

The Court referred to this conduct as “against the human dignity” and requested that the Enforcement Directorate immediately implement corrective actions and train its officers to adhere to a “reasonable time limit” when questioning suspects under the PMLA.

The Court deemed the ED arrest “illegal” while pointing out that Surendar Panwar, the accused Congress MLA, was question

The Court instructed the ED to uphold the Constitution’s Article 21 right to life and liberty, which includes the right to dignity, going forward. “It would be appreciated if some necessary mechanism is put in place for fair investigation of the accused as per basic human rights laid down by the United Nations Organization (UNO), instead of meting out unnecessary harassment, for such a longer duration at one stretch for a given day,” it stated.

No PMLA prosecution when the accused is found not guilty of the predicate offense or closure report file.

The Court explained in Chetan Gupta v. Directorate of Enforcement and Others that the Enforcement Directorate’s (ED) complaint under the Prevention of Money Laundering Act, 2002 (PMLA) based on the predicate offence would also be closed once a closure report was filed in that offence.

“The PMLA proceedings are always secondary and subservient to the primary proceedings under some principal criminal offense, which is known as the predicate offense,” the Court clarified. The Enforcement Directorate can only investigate scheduled criminal offenses against those who have laundered the money, including or excluding those named as accused in the primary offense, if the violations of the primary criminal penal provisions are listed in the PMLA schedules.

“There is no legal bar that restricts the powers of this Court under section 482 CrPC by ignoring the prayers to quash ECIR but to consider the remaining prayers to quash the complaint as well as all subsequent proceedings,” the Court stated, addressing a significant issue.

The argument that dismissing the complaint because ECIR is pointless would grant ED arbitrary authority

Since the ECIR is merely an internal departmental document and is not a prerequisite for initiating an investigation or inquiry by the ED, the Court noted in Chetan Gupta’s case that its quashing would be completely pointless.

The judge emphasized that this would not mean that the courts would not consider other prayers, such as quashing the complaint and quashing any further proceedings or any other proceedings that are still pending before the Enforcement Directorate, if one of the accused’s prayers also calls for quashing the ECIR.

The Court clarified further that, “If such a view is taken, then it would give untrammeled arbitrary powers to the Enforcement Directorate to continue and keep pending the inquiry/investigation against the accused under the pretext or disguise that even if an accused has been acquitted in the predicate offense, a decision is yet to be taken regarding the filing of a complaint against acquittal or such appeal is pending, or even when they do not find any evidence against the accused, at that stage, instead of absolving them, they continue to sit over the inquiry/investigation which would have unparalleled bearing on the accused mental health.”

“The petitioners have been acquitted in the primary predicate offense,” the Court stated in the current case. As a result, the Enforcement Directorate’s prosecution of the offense would likewise automatically become secondary evidence.

Given the aforementioned, the Court believed that the Enforcement Directorate’s complaint ought to be closed, along with any related procedures.

Court Slams ED For Refusing To Release Accused For Four Days To Prepare Defense: “ED Ignorant Of Ground Realities”

Earlier this year, the court rejected the ED’s appeal against the four-day release granted by a special court to an accused person arrested under the Prevention of Money Laundering Act so that he could get defense papers.

The Court dismissed the ED’s argument that allowing the petitioner to meet with people outside of the jail would be a serious injustice because it would allow him to deal with critical evidence and criminal proceeds.

There must be justifications for refusing bail when the investigating agency did not make an arrest but the trial court requests judicial custody after filing an ECIR.

It was made clear in Gurinder Pal Singh @ Tinku v. ED that the court must provide justification for refusing bail in PMLA instances when the investigative agency did not make an arrest but the trial court requests judicial custody after filing the complaint.

“When the Investigating agency did not make an arrest, but the trial court wants judicial custody on filing the complaint [ECIR], there must be reasons to deny bail, which are non-existent (in the present case),” the court stated when granting anticipatory bail in a PMLA case.

Under the PMLA, the accused is required to participate in the investigation but is not required to make a self-incriminating statement.

The High Court struck a compromise between the accused’s obligation to cooperate with the investigation and their right against self-incrimination in Gurpreet Singh Sabharwal v. State of Haryana and others.

According to the Court, the accused cannot be forced to make an incriminating testimony against himself in accordance with the protection provided by Article 20(3) of the Indian Constitution, but he is required to help with the inquiry in accordance with the summons issued under 50(2) of the PMLA. It stated that, “The…fundamental right under Article 20(3) of the Constitution of India is available to be exercised as a shield by every accused in an offence punishable under the Prevention of Money Laundering Act which undoubtedly is a criminal law, promulgated to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and for matters connected therewith or incidental thereto.”

The Enforcement Directorate is unable to stop anyone whose property is being searched from moving around.

In Dilbag Singh @ Dilbag Sandhu v. UOI, the High Court noted that the ED cannot limit the movements of individuals whose homes are being searched in connection with money laundering investigations.

According to the PMLA Rule, 2005, the Court clarified that “it cannot be said that the authorities have a right to restrain the movements of the said persons i.e. the petitioners in the present case within the premises because there is nothing which stops the persons whose premises are being searched from carrying out their daily routine including going to their offices/place of work and the authorities have the right to require the said persons to open any lock, safe, or almirah and in case of non-compliance, the authorities have further power to break open the same.”

Lastly,

Political leaders are increasingly being targeted by the PMLA in money laundering investigations. The ED should follow the Supreme Court’s and High Courts’ established jurisprudence and operate within the bounds of the constitution.

The poor conviction rates in cases pursued by the Enforcement Directorate were recently brought to the attention of the Apex Court. According to data recently provided to Parliament by the Union Government, the conviction rate in ED cases since 2019 is only 6.42%.

Justice Surya Kant raised concerns about protracted trials under the PMLA and asked, “How long can an accused person be held in jail in such cases?

It is important to note that the Supreme Court emphasized the necessity for the Enforcement Directorate to establish a consistent policy about whether an individual should be arrested under the PMLA in its ruling awarding Delhi Chief Minister Arvind Kejriwal temporary bail.

“The data raises a number of questions, including the question whether the DoE has formulated a policy, when they should arrest a person involved in offences committed under the PML Act,” the Supreme Court noted after reviewing statistics on mounting cases, particularly against MPs and MLAs.

The Chief Justice of India, N.V. Ramana, cautioned against the “dilution of the Act” by using the PMLA in every case and urged that its application be “reasonable.” The agency must keep this in mind.