Challenges to the Prevention of Money Laundering Act #7: Sr. Adv. Siddharth Luthra Argues for Procedural Checks on the ED

On the seventh day of hearings in the challenges to the Prevention of Money Laundering Act, 2002 (PMLA), the Supreme Court contemplated how to bring the investigation process under the Act in line with the rights of the accused under the Constitution. Senior Advocate Kapil Sibal argued that Parliament had created a ‘Frankenstein’s monsters’ in the PMLA. He stated that the Act was being used like a horse without restraints. 

Today Justices Khanwilkar, Maheshwari and Ravikumar heard Mr. Sibal and Senior Advocate Siddharth Luthra argue for procedural checks on the investigative powers of the Enforcement Directorate (ED). Both lawyers focused on the lack of procedure for investigations under the PMLA and the effect this had on the rights of the accused.

The Accused Must Be Given Adequate Information Of The Accusation Before Arrest

Mr. Sibal argued that the Court should devise rules to ensure  that an accused is informed of the allegation and evidence against them before the ED commences an investigation under the PMLA. He stated that in the original 2002 Act, the ED could only investigate after a chargesheet was filed, but this was done away with through various amendments. Now, the ED insists that the ECIR is an internal document and does not provide a copy to the accused. Resultantly, the accused’s right to apply for bail is compromised for the accused has no idea what his offences are during the bail trial. 

Mr. Sibal concluded, stating that to remedy this situation, the Court should require the ED to start investigating only after furnishing a copy of the ECIR to the accused. Mr. Luthra supported this argument, stating that the magistrate ordering bail is also often unaware of the reason for arrest. Justice Khanwilkar instructed the advocates to show the Court how the PMLA can be harmoniously constructed with the rights of the accused—how can the accused be given the requisite information within the scheme of the Act? 

What Police Rules Should Apply to the ED?

In his submissions in past hearings, Mr. Sibal argued that ED officers had police powers as the ECIRs they prepared had a similar effect as a chargesheet and they had the power to obtain a confession from the accused. Today Mr. Luthra compared several provisions of the PMLA and the Code of Criminal Procedure, 1973 (CrPC) to argue that the powers of ED officers before the filing of the ECIR, during the course of investigation and when filing a closure report are akin to the police. Mr. Luthra’s contention was the same as Mr. Sibal’s—if the ED has police powers, they should be made to adhere to the same investigation procedure as the police. 

Justice Khanwilkar  asked Mr. Luthra what the exact implications of holding that the ED is a police agency would be. Would the ED only have to comply with the procedure in the CrPC or with various State police rules and manuals as well? Mr. Luthra responded saying that the State manuals formed the technical ‘nuts and bolts’ of the procedure set out in the CrPC and the Court need not opine on this trivial question. The Bench was unsatisfied with this answer, stating that this question would lead to further litigation if it was not settled. 

No ‘Procedure Established by Law’ for Investigations Under PMLA

Mr. Luthra argued that Section 50 is the only provision in the PMLA that deals with the procedure for investigation. It fails to properly establish a procedure. The Union government argues that the general criminal procedure of the CrPC can be made to apply to special criminal statutes only when the special statute is silent on procedural issues. In the case of the PMLA, the Union states that the procedure for investigation is set out in the ED Manual. 

Mr. Sibal argued that the ED Manual is an internal circular made by exercising Executive powers. It cannot be used to deprive the accused of  their Article 21 and 20(3) rights as it is not procedure established by law. The CrPC must necessarily apply to PMLA investigations. 

The Bench will continue hearing Mr. Luthra on February 3rd 2022.