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Judicial Bulwark Against Abusive Exercise Of Power Under PMLA

For years, India's legal system lacked the necessary tools to combat the growing problem of money laundering and financial crimes. The country struggled to address the rampant corruption and white-collar offenses that had gone unchecked.

To address this issue, the international community introduced the Financial Action Task Force (FATF), which provided a framework of 40 recommendations for comprehensive legislation to tackle money laundering. This led to the enactment of the Prevention of Money Laundering Act (PMLA) in 2002.

The PMLA empowered the Directorate of Enforcement (ED) with the authority to trace and seize assets derived from criminal activities. However, in its early stages, the law's enforcement remained lackluster, with only a meager ₹35 crore in assets recovered or seized up to 2014.

Over time, the PMLA's implementation became increasingly stringent and unyielding. Suddenly, those accused found themselves at the mercy of this powerful law, facing the daunting possibility of having their properties confiscated and their freedom curtailed at the discretion of the authorities.

The ruthless seizure of assets by the Enforcement Directorate struck fear into the hearts of those who had amassed wealth through sophisticated white-collar crimes. The overzealous application of the 'proceeds of crime' provisions left innocent individuals ensnared in the PMLA's merciless grip, their lives disrupted by baseless harassment and unjust persecution. The legal pendulum had swung from one extreme to the other.

Yet, the Indian judiciary has consistently stood as a beacon of hope, safeguarding constitutional principles and striking a balance between the enforcement of the law and the protection of citizens' rights. Through a series of landmark judgments, the courts have meticulously crafted a web of safeguards, a delicate equilibrium that ensures the PMLA's effectiveness while safeguarding the sacred rights of the accused.

These judicial interventions have not merely paid lip service to due process and natural justice; they have become a shield against the arbitrary exercise of power, fortifying the fundamental liberties that form the bedrock of our Constitution. The Supreme Court's rulings, discussed in the following paragraphs, have layered additional protections to uphold these essential freedoms.

Ensuring Transparency in Administrative Decisions

The application of natural justice principles to administrative orders was initially debated, but the Supreme Court's landmark ruling in AK Kraipak v. Union of India clarified that administrative orders must adhere to these principles. A crucial tenet of natural justice is the requirement for well-reasoned orders. Providing 'speaking orders' that explicitly articulate the underlying rationale serves to promote accountability and safeguard the individual's right to a fair hearing, as they are informed of the specific allegations against them. Consequently, adjudicating authorities must issue well-reasoned or 'speaking' orders.

Asset Attachment under PMLA

The Prevention of Money Laundering Act (PMLA) empowers the Director or a Deputy Director-level officer to attach property involved in money laundering. However, before invoking the second proviso, the Enforcement Directorate (ED) must first carefully examine the available evidence and record its reasons in writing, believing that provisional attachment is necessary.

The Supreme Court has emphasized that an order issued under Section 5(1) of the Prevention of Money Laundering Act (PMLA) is temporary in nature and valid for up to 180 days, pending confirmation by the Adjudicating Authority (AA) under Section 8 of the Act. This means that the confiscation process can be disrupted.

Furthermore, the apex court and various High Courts have consistently held that the attachment of property under Section 8 of the PMLA must be based on a 'reason to believe' and the authority must carefully consider the facts and circumstances of each case before issuing an attachment order. A mere claim that the property is involved in money laundering is not enough until a specific finding to that effect has been recorded.

It is worth noting that the PMLA has ensured that the powers conferred to the AA and the Enforcement Directorate (ED) are not restricted, as the authorities are not required to provide reasons for confiscating the property involved in money laundering.

The law mandates that when the Enforcement Directorate (ED) arrests someone under the Prevention of Money Laundering Act (PMLA), they must promptly inform the accused person of the grounds for their arrest. This requirement stems from the constitutional right to be informed about the reasons for one's arrest, as established in the case of Prabir Purkayastha v. State (NCT of Delhi).

The Supreme Court has further clarified that the ED must provide the arrested person with a written statement of the reasons for their arrest, as ruled in the case of Pankaj Bansal v. Union of India & Ors. However, the law does not specify an exact timeframe for when the ED must inform the accused, only that it should be done "as soon as may be." The Supreme Court's decision in the case of Ram Kishor Arora v. reinforces the need for the ED to promptly communicate the grounds for arrest to the accused person.

The court's recent rulings have undoubtedly made progress in ensuring fair procedures for the accused. However, some potential issues may still arise. For example, an arrested person could be presented before a special court for remand without being informed of the reasons for their arrest. Similarly, an arrestee may be remanded to the custody of the Enforcement Directorate (ED) without either the arrestee or the remanding court being aware of the grounds for the arrest. This could render the remand hearing meaningless for the arrestee.

It is possible that the intended procedural safeguard may not ultimately benefit the arrested person as expected. The judiciary will hopefully provide more clarity on this matter in the future.

The Supreme Court's recent ruling in Tarsem Lal v. Directorate of Enforcement has established a crucial safeguard against potential misuse of authority. The Court has determined that once the trial court takes cognisance of an offence under the Prevention of Money Laundering Act (PMLA), the investigative agency, in this case, the Enforcement Directorate (ED), loses its power to arrest the accused individual under Section 19 of the PMLA. This decision firmly aligns with the constitutional principles of due process and fair trial, ensuring that individual liberties are protected and preventing enforcement agencies from exercising arbitrary actions.

The Court has clarified that after the trial court takes cognizance of an offence based on a complaint under Section 44(1)(b) of the PMLA, the ED and its officers are no longer able to use their powers under Section 19 to arrest the person named as the accused. The only way the ED can take the accused into custody is by applying for such custody before the special court. By upholding this principle, the Supreme Court has reaffirmed its commitment to safeguarding individual rights and preventing the abuse of power by enforcement agencies.

The PMLA, despite its noble intent of combating financial crimes, harbours the potential for infringement upon fundamental rights and liberties. In this regard, the role of the judiciary as the protector of constitutional values cannot be overstated. Through a series of landmark judgments, the courts have established crucial safeguards, ensuring that the powers conferred under the Act are not exercised in an arbitrary or unfair manner.

As the nation's legal landscape continues to evolve, these judicial safeguards serve as beacons of hope, ensuring that the pursuit of justice remains inextricably intertwined with the preservation of due process, natural justice and the rule of law - the bedrock of a truly democratic society.

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