POWERS OF THE ENFORCEMENT DIRECTORATE UNDER VARIOUS LAWS AND THE RIGHTS OF THE ACCUSED/AGGRIEVED PERSONS

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POWERS OF THE ENFORCEMENT DIRECTORATE UNDER VARIOUS LAWS AND THE RIGHTS OF THE ACCUSED/AGGRIEVED PERSONS

January 22, 2022

INTRODUCTION

The object behind the formation of the Directorate of Enforcement was to create a body capable of enforcing the provisions of two special fiscal laws, i.e., the Foreign Exchange Management Act, 1999 (FEMA) and the Prevention of Money Laundering Act, 2002 (PMLA). The Directorate recruits’ officers through two mediums, i.e., directly or from other Investigating Agencies like the Customs & Central Excise, Income Tax, Police, etc. on deputation. 

There was a significant change in the organisation structure of the Directorate in 2011 due to which the total work force of the Directorate saw a deep surge from 758 officers to 2067 officers. The number of offices across India was also increased from 21 to 49. However, it is pertinent to note that all the 49 offices are not functional yet. 

HISTORY & DEVELOPMENT

The origins of this Directorate can be traced back to May 1, 1956, when a ‘Enforcement Unit’ was established in the Department of Economic Affairs to handle Exchange Control Law violations under the Foreign Exchange Regulation Act, 1947 (FERA), and the Enforcement Unit had two branches, one in Mumbai and the other in Calcutta.

This Unit was renamed the ‘Enforcement Directorate’ in 1957, and another branch was established in Madras. In 1960, the Directorate’s administrative control was transferred from the Department of Economic Affairs to the Department of Revenue. FERA was repealed and replaced by FERA, 1973 over the years. The Directorate remained under the administrative authority of the Department of Personnel & Administrative Reforms for the next four years.

FERA was repealed in 1999, and a new legislation, the Foreign Exchange Management Act of 1999, took its place. Furthermore, in accordance with the International Anti-Money Laundering framework, the Prevention of Money Laundering Act, 2002 was passed, and the duty for enforcing the provisions of both of these enactments was delegated to the Enforcement Directorate on July 1, 2005.

Currently, the Directorate is in charge of enforcing a number of laws. The Directorate has quasi-judicial powers under FEMA to investigate alleged violations of the Exchange Control Laws and Regulations, as well as the authority to impose fines on individuals found guilty. The Officers of the Directorate are authorised under the PMLA to undertake inquiries to find, provisionally attach/confiscate assets acquired from Scheduled Offenses, in addition to arresting and prosecuting the Money Launderers.

FUNCTIONS OF THE ENFORCEMENT DIRECTORATE

The Enforcement Directorate has been entrusted with several roles and responsibilities under multiple statutes. The prominent functions of the Directorate have been listed below:

  • Prevention of Money Laundering Act, 2002: The Directorate is empowered to investigate offences of money laundering and to take actions/prosecute persons in cases where it is proved. These actions are taken against the proceeds of crime derived from the Scheduled Offences listed under PMLA. A total of 156 offences under 28 statutes have been listed as Scheduled Offences under PMLA. It has the additional responsibility of extending cooperation to foreign countries for investigations regarding money laundering and for the recovery of the proceeds of crime held in foreign countries. 
  • Foreign Exchange Management Act, 1999: The Directorate is empowered to investigate violations of the provisions of FEMA. These violations are adjudicated by designated authorities of the ED and they are empowered to impose penalties up to three times the sum involved in the contravention.
  • Fugitive Economic Offenders Act, 2018: Processing cases of fugitive/s from India. 
  • Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974: Sponsor cases of preventive detention w.r.t contraventions of FEMA.

KEY POWERS AND FUNCTIONS UNDER RELEVANT LAWS

Power of Investigation

Prevention of Money Laundering Act, 2002

As per Sections 48 & 49 of the PMLA, the officers of the Directorate of Enforcement have been given powers to investigate cases of Money Laundering. The officers have also been authorised to initiate proceedings for attachment of property and to launch prosecution in the designated Special Court for the offence of money laundering.

Foreign Exchange Management Act, 1999

As per Section 37 of FEMA, the Director and Assistant Director of EDhave the power to conduct investigation for any contravention that may occur under FEMA. The power given to the ED is the same as that of an Income Tax Officer under the ITA in terms of Section 131. 

Fugitive Economic Offenders Act, 2018

As per Section 6 of the FEOA, the Director is empowered to conduct investigations, enforce attendance of persons, compel production of records etc for determining whether the individual is a fugitive offender or not. 

Powers of ED during Survey

Prevention of Money Laundering Act, 2002 and Fugitive Economic Offenders Act, 2018

Under Section 16 of the PMLA and Section 7 of the FEOA, the Investigating authority during the survey may:

  1. Place marks of identification on the records inspected by him and make or cause to be made extracts or copies therefrom. 
  2. Make an inventory of any property checked or verified by him.
  3. Record the statement of any person present in the place which may be useful for, or relevant to, any proceeding under this Act.

In Virbhadra Singh & Anr vs Enforcement Directorate, it was observed that “the powers of survey, search and seizure, search of persons, retention of property or of records, to issue summons to enforce attendance of any person and compel him to give evidence or produce records, discovery or inspection, as indeed the power to arrest, as conferred by various provisions of PMLA on the investigative agency created by the law equip such agency with all the necessary tools to conduct an effective investigation without the aid or assistance of police. For purposes of criminal prosecution, the initiative is placed in the hands of the authorities established by PMLA, the cognizance by the court mandatorily required to be on their complaint.”

Powers of ED during Search and Seizure

Prevention of Money Laundering Act, 2002 and Fugitive Economic Offenders Act, 2018

Under Section 17 of the PMLA and Section 8 of the FEOA, the Authorised Officer has the following powers of search and seizure:

  1. Enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that such records or proceeds of crime are kept.
  2. Break open the lock of any door, box, locker, safe, almirah or other receptacle where the keys thereof are not available.
  3. Seize any record or property found as a result of such search.
  4. Place marks of identification on such record or properties if required or make or cause to be made extracts or copies therefrom.
  5. Make a note or an inventory of such record or property.
  6. Examine on oath any person, who is found to be in possession or control of any record or property, in respect of all matters relevant for the purposes of any investigation under this Act and where it is not practicable to seize such record or property, the officer authorized may make an order to freeze such property, whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order.

Foreign Exchange Management Act, 1999

As per Section 37 of FEMA, the ED is empowered to conduct investigations, search and seize property during such investigation. 

Power to issue Summons

Prevention of Money Laundering Act, 2002

As per Section 50, the ED has the power to summon any person whose attendance he considers necessary whether to give evidence or to produce any records during the course of any investigation or proceeding under this Act. 

All the persons so summoned are bound to attend in person or through authorised agents, as such officer may direct, and are bound to state the truth upon any subject respecting which they are examined or make statements, and produce such documents as may be required. Such proceedings are deemed to be judicial proceedings within the meaning of section 193 and section 228 of the Indian Penal Code

Fugitive Economic Offenders Act, 2018

Section 6 of the FEOA empowers the Director to issue summons for the purpose of enforcing the attendance of any person, compelling the production of records, receive evidence of affidavits, discovery and inspection of documents etc. 

Foreign Exchange Management Act, 1999

Section 37(3) of the FEMA empowers the Director or Assistant Director of the ED to summon a person. The scope of this power was examined by the Court in the case of KA. Manshoor vs. Assistant Director, Enforcement Directorate, Government of India, wherein it was held that “when the Director or Assistant Director of the ED summons a person under Section 37(3) of FEMA, the person summoned cannot challenge the issuance of summons by the ED in the Court by way of a writ. The power to call for the presence of a person in order to produce relevant documents is a part of preliminary investigation by the ED and doesn’t make a person ‘accused’ in the eyes of law. Hence, the issuance of summons doesn’t infringe any rights of a person and they cannot move a court to challenge the same.”

Where a summon has been issued in respect of an investigation under Section 37 of FEMA, in default of his appearance on the date mentioned in the summon so issued, he would be liable to action under Section 13 of FEMA. A show cause notice may then be issued to the person who has failed to appear before the ED, by the Adjudicating Authority.

In Suman Sehgal vs. Union of India, it was observed that “the ED established under Sec 36 of FEMA is empowered to exercise powers and discharge duties as provided under Sec 37 of the said Act, which stipulates the extent of such powers of the officers.”

Power of Search of Persons

Prevention of Money Laundering Act, 2002 and Fugitive Economic Offenders Act, 2018

As per Section 18 of PMLA and Section 9 of FEOA, if  the Authorised Authority has  reason  to  believe  (the  reason  for  such  belief  to  be  recorded  in  writing)  that any  person  has  secreted  about  his  person  or  in  anything  under  his  possession,  ownership  or  control,  any record  or  proceeds  of  crime  which  may  be  useful  for  or  relevant  to  any  proceedings, he may  search  that  person  and  seize  such  record  or  property  which  may  be  useful  for  or  relevant  to  any proceedings under the respective statutes.

Attachment of Property

Prevention of Money Laundering Act, 2002 

As per Section 5 of PMLA, where the Director, or any other officer not below the rank of Deputy Director authorised by the Director has reasons to believe (the reason for such belief to be recorded in writing), on the basis of material in his possession, that any person is in possession of any proceeds of crime and such proceeds of crime or likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such proceeds of crime, he may, by an order in writing, provisionally attach such property for a period not exceeding 180 days from the date of the order, in such manner as may be prescribed.

Further any property of any person may be attached, if the Director or any other officer not below the rank of Deputy Director authorized by him has reason to believe (reasons for such belief to be recorded in writing), on the basis of material in his possession, that if such property involved in money laundering is not attached immediately the non-attachment of the property is likely to frustrate any proceedings under this Act.

Fugitive Economic Offenders Act, 2018

As per Section 5 of FEOA, the Director  or  any  other  officer  authorised  by  the  Director,  may,  with the  permission  of  the  Special  Court,  attach  any  property that has been mentioned in the Application for declaration of the person as a fugitive economic offender. The Director may also attach the property before filing the application if there is  a  reason  to  believe  that  the  property  is  proceeds  of  crime,  or  is  a  property or  benami  property  owned  by  an individual  who  is  a  fugitive  economic  offender and that it is  being  or  is  likely  to  be  dealt  with in a  manner  which  may  result  in  the  property being  unavailable  for  confiscation.

The attachment  of  any  property  under  this  section  shall  continue  for  a  period  of  one  hundred and  eighty  days  from  the  date  of  order  of  attachment  or  such  other  period  as  may  be  extended  by  the Special  Court  before  the  expiry  of  such  period.

As per Section 12, if after the completion of proceedings, the Special Court orders for the release of the property, the Director or  any  other  officer  authorised  by  him  on  his  behalf  may  withhold  the release  of  any  such  property  or  record  for  a  period  of  ninety  days  from  the  date  of  receipt  of  such order, if  he  is  of  the  opinion that  such  property  is  relevant  for  the  appeal  proceedings  under  this  Act

Recovery of Fines, Penalties and Arrears of Penalties

Prevention of Money Laundering Act, 2002 

As per Section 69, where any fine imposed on any person under section 13 or section 63 is not paid within six months from the day of imposition of fine or penalty, the Director or Director of Enforcement or any other officer authorised by them in this regard may proceed to recover the amount from the said person in the same manner as prescribed in Schedule II of the Income Tax Act, 1961 for the recovery of arrears and he or any officer authorised by him thereof shall have all the powers of the Tax Recovery Officer mentioned in the said Schedule for the said purpose.

Foreign Exchange Management Act, 1999

As per Section 14A of FEMA, the Adjudicating Authority can direct the officers of the Enforcement Directorate to recover the arrears of penalty payable by any person who fails to pay the penalty within the prescribed time period of 90 days. 

Appeals

Prevention of Money Laundering Act, 2002 

As per Section 26, the Director or any person aggrieved by an order made by the Adjudicating Authority under this Act, may prefer an appeal to the Appellate Tribunal within a period of forty-five days from the date of receipt of a copy of the order made by the Adjudicating Authority. As per Section 42, any person aggrieved by any decision or order of the Appellate Tribunal may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law or fact arising out of such order.

Fugitive Economic Offenders Act, 2018

As per Section 17, an appeal from the order of a Special Court can be filed by any person to the High Court within 30 days from the date of receipt of a copy of the order on both questions of law and questions of fact arising out of such order. 

Foreign Exchange Management Act, 1999

As per Section 17, any person, including the Assistant Director of Enforcement or  a  Deputy  Director  of  Enforcement,  may  prefer  an  appeal  to  the  Special Director  (Appeals) from the order of the Adjudicating Authority within 45 days from  the date on which the copy  of  the  order  made  by  the  Adjudicating  Authority  is  received  by  the  aggrieved  person. A further appeal can be filed to the Appellate Tribunal under Section 18. 

OTHER POWERS OF THE ED UNDER PMLA, 2002

Retention of records impounded during investigation

As per Section 50, the ED may impound and retain in its custody for such period, as it thinks fit, any records produced before it in any proceedings under this Act. 

However, an Assistant Director or a Deputy Director cannot impound any records without recording his reasons for so doing or retain in his custody any such records for a period exceeding three months, without obtaining the previous approval of the Director.

Time Limitations

As per Sections 20 and 21, the property / record may, if seized, may be retained or if frozen may continue to remain frozen for a period not exceeding 180 days from the day on which such property or record were seized or frozen, unless the Adjudicating Authority under PMLA permits retention of such record or property beyond the period of 180 days.

Release of seized/frozen records

As per Section 21, after an order of confiscation of properties under Section 8 has been passed, the Adjudicating Authority shall direct the release of the records to the person from whom such records were seized. However, the Director or any other officer authorised by him in this behalf, may withhold the release of any such record for a period of ninety days if he (Director of Enforcement) is of the opinion that such property is relevant for the appeal proceedings under this Act.

Admissibility of statements recorded before the ED

The statement recorded before the Investigating Officer under PMLA is admissible evidence in the Court as such a proceeding under Section 50(2) and 50(3) of the Act is a judicial proceeding within the meaning of Section 193 and 228 of IPC.

OTHER POWERS OF THE ED UNDER FEMA, 2002

Adjudication

According to Section 16 of FEMA, the Central Government is empowered to appoint the officers of the Enforcement Directorate as Adjudicating Authorities for carrying out inquiries for violations of the Act. The officers so appointed are empowered to direct the accused to furnish a bond of guarantee in cases where it is of the opinion that the accused might abscond or attempt to evade the payment of penalty. The Adjudicating Authority have to complete the inquiry and pass an order within a prescribed time period of 1 year. 

As per Section 14, if the offender fails to pay the penalty imposed on him within 90 days, then the Adjudicating Authority may issue an arrest warrant against him. Prior to issuing an arrest warrant, the Adjudicating Authority shall issue a notice to the defaulter asking him to show cause for the default. In case the Authority is not satisfied with the reasons cited by the Defaulter for non-payment of the penalty and is of the opinion that the defaulter may either abscond or cause obstructions in the payment of penalty, it may issue an arrest warrant against him. An arrest warrant can also be issued if the defaulter fails to appear or file an appearance before the Authority pursuant to the Notice. 

Compounding of offences 

As per Section 15, compounding of offences under FEMA is a mechanism where the guilty person is allowed to give monetary payment for any violations committed under section 13. However, in Brentfield Travels Co. Pvt. Ltd v. Reserve Bank of India & Another, it was held that “the competent authority can decide on a case-to-case basis whether or not the offence is to be compounded.” Section 15 further provides that the matter by the Compounding Authority must be disposed within 180 days from the date of receipt of application for compounding by the ED and the RBI.

Rule 5 Foreign Exchange (Compounding Proceedings) Rule, 2000 provides authority to the following ED officers according to the monetary limit involved in contraventions of the provisions under Sec 3(a) of FEMA:

Sr. NoSum involved in contraventionOfficers of ED
1Less than or equal to Rs. 5,00,000Deputy Director
2More than Rs. 5,00,000 but less than Rs. 10,00,000Additional Director
3More than Rs. 10,00,000 but less than Rs. 50,00,000Special Director
4More than Rs. 50,00,000 but less than Rs. 1,00,00,000Special Director with Deputy Legal Advisor
5More than or equal to Rs. 1,00,00,000Director with Special Director

REMEDIES AVAILABLE TO PERSONS AGINST ACTIONS INITIATED BY ED

Rights of persons being searched

Prevention of Money Laundering Act, 2002 and Fugitive Economic Offenders Act, 2018

As per Section 18 of PMLA and Section 9 of FEOA, the following rights have been provided to the accused/aggrieved persons:

  1. Where an authority is about to search any person, he shall, if such person so requires, take such person within twenty-four hours to the nearest Gazetted Officer, superior in rank to him, or a Magistrate. 
  2. If the requisition is made, the authority shall not detain the person for more than twenty-four hours prior to taking him before the Gazetted Officer, superior in rank to him, or the Magistrate referred to in that sub-section. 
  3. The Gazetted Officer or the Magistrate before whom any such person is brought shall, if he sees no reasonable ground for search, forthwith discharge such person but otherwise shall direct that search to be made. 
  4. Search shall be made in the presence of two or more persons. 
  5. No female shall be searched by anyone except a female.

Rights of persons during arrest

Prevention of Money Laundering Act, 2002

As per Section 19 of PMLA, the Authorized Officer making an arrest shall, as soon as possible, inform the arrestee of the grounds for such arrest. Every person so arrested shall, within 24 hours, be taken to a Judicial Magistrate or a Metropolitan Magistrate, as the case may be, having jurisdiction.

Remedies to aggrieved person at the time of Attachment

Prevention of Money Laundering Act, 2002

As per Section 8 of PMLA, before recording the finding that all or any of the properties are involved in money laundering, the Adjudicating Authority has to issue a show cause notice of not less than thirty days to the aggrieved person. The aggrieved person at this stage can submit his reply and attend the hearing before the Adjudicating Authority to present his defence.

Remedies to officers of the Company

Prevention of Money Laundering Act, 2002 and Foreign Exchange Management Act, 1999

As per Section 42 of FEMA and Section 70 of FEMA, if the officers of the Company prove that the contraventions under the respective Acts took place without their knowledge and that they exercised all due diligence to prevent such contravention, then they cannot be held liable for any contravention by the Company. 

CONCLUSION

The ED is a premier financial investigation agency of the Government of India and functions in accordance with the provisions of the various provisions under the applicable laws. Over the years, it has dealt with more than 20,000 cases under both PMLA and FEMA and has acted as a guardian against financial crimes in India. Only time will tell whether it will keep up with the changing times and be able to fulfil its role to the best of its capacity. 

Author: Abhishek Gupta, Senior Associate.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at abhishek@samistilegal.in

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