ED's Powers: Arrest and Custody in Financial Offense Cases

ED's Powers: Arrest and Custody in Financial Offense Cases
Posted on 24-07-2023

ED's Powers: Arrest and Custody in Financial Offense Cases

The recent case involving a Tamil Nadu minister arrested by the Enforcement Directorate (ED) in connection with a money-laundering case has brought into focus the question of whether the ED has the authority to seek custody of individuals it arrests.

The Enforcement Directorate (ED) was originally established as an 'Enforcement Unit' in 1956 under the Department of Economic Affairs, Ministry of Finance. Subsequently, it was renamed as the 'Enforcement Directorate' in 1957 and currently operates under the administrative control of the Department of Revenue, Ministry of Finance, for its operational purposes. The primary responsibilities of the ED include enforcing the Foreign Exchange Management Act of 1999 (FEMA) and certain provisions under the Prevention of Money Laundering Act of 2002 (PMLA). The agency plays a crucial role in upholding law and order in India's financial system and safeguarding the rights of the people.

The ED's powers, as granted by the PMLA, allow it to detain individuals accused of committing economic crimes. The agency also has the authority to conduct searches and seizures of assets and real estate acquired unlawfully. Moreover, the ED can freeze bank accounts suspected of being involved in money laundering or other financial offenses, and it has the power to seize properties and assets acquired through illegal means.

The recent Madras High Court ruling upheld the ED's right to subject any person accused in a case booked under the PMLA to custodial interrogation. The court ruled that the ED officials are not considered police officers as per the law laid down by the Supreme Court in the Vijay Madanlal Choudhary v. Union of India case in 2022. This distinction was made because statements given to the ED are admissible as evidence under the PMLA, whereas the same statements given to police officers would not be admissible before the trial court under the Code of Criminal Procedure (CrPC). The court emphasized that denying the ED the opportunity to effectively investigate money laundering offenses would not be justified.

The powers of the ED have been reinforced by various Supreme Court judgments in the past. In the Vijay Madanlal Choudhary case, the Supreme Court upheld the provisions of the PMLA related to arrest, attachment, search, and seizure, as they were deemed to have a reasonable nexus with the objectives of preventing money laundering effectively. Another significant ruling, the Central Bureau of Investigation v. Anupam J. Kulkarni case in 1992, established that police custody cannot extend beyond 15 days from the date of arrest, but exceptions apply if the accused is involved in a different case arising from a different transaction. Nevertheless, this decision has been under reconsideration by a bench of the Supreme Court.

The case of P. Chidambaram v. Directorate of Enforcement in 2019 saw the Supreme Court rejecting anticipatory bail for an offense of money laundering and granting custody to the ED. The court emphasized the need for a systematic and analyzed investigation in money laundering cases involving multiple stages of fund placement and layering. However, the court also cautioned against interference in investigations unless mala fide intentions are evident.

In conclusion, the Enforcement Directorate has been vested with significant powers that have been upheld by the Apex Court to protect the nation's financial and economic interests. Nonetheless, it is essential for the agency to adhere to the constitutional provisions and maintain its integrity to avoid unnecessary criticism.