Power of ED to conduct Survey, Search & Seizure [PMLA, 2002]

I. INTRODUCTION

Should the ‘safety of the people be the supreme law’, or should the ‘safety of the state be the supreme law’?

In the context of Indian Jurisprudence, both these legal principles exist side by side and are not only significant but also form the very basis of the idea that an individual’s welfare must take a back seat when confronted with the welfare of the community.

The power to conduct surveys, search, and seizure is a supreme state authority granted to the Enforcement Directorate (“ED”) for the curtailment of the menace of money laundering in India. However, such power must unavoidably be subject to legal restrictions. Although the right to own and use the property gets temporarily restricted after a seizure, a search by itself does not restrict the right to hold and enjoy the property.

In this article, we will be discussing the power granted to the ED to conduct surveys, search, and seizure, along with the prerequisites to be exercised by the ED officials before exercising such power, and what are the legal restrictions for the exercise of such power.

II. POWER TO CONDUCT SURVEY

Section 16 of the Prevention of Money Laundering Act (“PMLA”) empowers ED officials to enter any place and conduct a survey.

The prerequisites for conducting a survey under Section 16 are:

1. based on the information in possession,
2. ED officials have ‘reason to believe’,
3. an offence of Money Laundering (Section 3) has been committed,
4. The reasons to believe must be recorded in writing. 

Only after fulfilling all these criteria can the ED officials conduct a valid survey.

Immediately after the survey is completed, the authority must forward a ‘copy of the reasons to believe so recorded’, along with the ‘material in possession’ to the Adjudicating Authority in a ‘sealed envelope’. 

The authority may carry out the survey within the boundaries of the area assigned to it at which any act constituting the commission of an offence under section 3 is carried out or in an area where it has been granted permission for the purposes of section 16 by another authority that has been assigned the area at which such an act is committed.

Reasons to Believe

The PMLA Act does not define the expression “reasons to believe”. However, Section 26 of the Indian Penal Code, 1908 defines it as follows: “A person is said to have ‘reason to believe’ a thing if he has sufficient cause to believe that thing but not otherwise”. 

Reasons to believe must not equate with the officer’s own satisfaction. A belief cannot just be a pretext; it must be embraced in good faith and in furtherance of prohibiting the offence of money laundering.

In Partap Singh v Director of Enforcement[1], it was held in the context of reasons to believe that it is open for the courts to decide on whether the grounds for such belief have a reasonable link or a relevant bearing on its formation and are not superfluous or irrelevant to the provisions’ objective.

The situation must be seen through the knowledgeable lens of the officer who is qualified to assess the suspicious circumstances and come to a reasonable conclusion, given those circumstances.

In AS Krishna v State of Kerala[2], the supreme court observed that the test for reasons to believe is that someone must have a good reason to believe that the circumstances are such that a reasonable person would probably draw the same conclusion or inference about the nature of the subject in question. The court further added that it is sufficient if the circumstances are such that they give rise to a reason to believe by a line of plausible reasoning that leads to the conclusion or inference about the nature of the thing; such circumstances do not necessarily need to be capable of absolute conviction or action.  

III. POWER OF ED TO CONDUCT SEARCH AND SEIZURE

Section 17 of the PMLA empowers ED officials to enter any premises and conduct search and seizure of property.

For an effective and legally valid search and seizure, the quartet test of ‘Search,’ ‘Seizure,’ ‘Proceeds of Crime’ and ‘Money Laundering’ must be met, meaning thereby that there must be nexus between all four pointers.[3]

Search and Seizure

As per Section 17, an officer subordinate to a director, or any other authorized officer not below the rank of Deputy Director, can conduct a search and seizure of the documents/property with the Director’s authorization or, in certain circumstances, even without the Director’s authorization.

The pre-requisites for conducting a valid search and seizure are:

1. Commission of an offense of Money Laundering (Complaint registered at Police Station)
2. The authorized officer has information in his possession,
3. The authorized officer has reason to believe that an offence of money laundering has been committed
4. Reasons to believe must be recorded in writing.

The next step is for the Authority to determine if the ‘reasons to believe’ include within its ambit any one of the following:

1. The person has committed offense of money laundering  
2. Is in possession of proceeds of crime involved in money laundering
3. Is in possession of records related to money laundering
4. Is in possession of property related to crime.

After fulfilling all these criteria, the legal ingredients are met for conducting search and seizure at the desired location.

Section 17 (3) empowers the Authorized officer to conduct search and seizure without authorization from the Director if after conducting a survey under Section 16, the authorized officer is satisfied that the evidence has been concealed or is tampered with. The authorized officer must have adequate reasons to believe, and the same must be recorded in writing.

Immediately after the search, the authorized officer must forward a copy of the reasons recorded and material in possession to the Adjudicating Authority in a sealed cover.

The reasons to believe can only be recorded by the Director or the Deputy Director. However, the responsibility of forwarding a copy of the same, along with the material obtained during the search to the Adjudicating Authority has been deputed to the Authorized officer.

In JK Tyre and Industries Ltd. V Directorate of Enforcement[4], the Delhi High Court held that it would not be possible for the authorized officer to retain some part of the material, and send some part of the material to the Adjudicating Authority as the statute contemplates “the material in possession of the authority” and NOT ‘material forming the basis of the ‘reason to believe.’

In P.P Abdullah v Competent Authority[5], the Supreme Court held that reason to believe must be communicated along with counter affidavits at lest and the authorities are bound to place the same before the court to check the veracity of the same and conclude whether such reason to believe are relevant or not. In C.B Gautam v UOI[6], the Supreme Court held that reason to be recorded in writing not only be incorporated in the order but also shall be communicated to the affected parties.

Vexatious Search

The Supreme Court in Vijay Madanlal Chaudhary v UOI[7] held that if the search and seizure conducted are eventually found to be without reasons recorded in writing, it would entail punishment for a vexatious search.

As per Section 62, if the Director (or Deputy Director) has authorized a search without recording the reasons in writing, the concerned officer will be liable for imprisonment which may extend up to two years, or a fine which may extend up to fifty thousand rupees.  

Freezing of Proceeds of Crime

Freezing of the property/documents obtained during the search can only be done in case seizure of the same is found to be “impracticable.”

The authorized officer must satisfy all the 5 prerequisites below to be able to freeze any property:

1. All the requirements for conducting a valid search are met
2. Upon satisfaction of requirements being met, the officers must enter the place for conducting search and seizure.
3. During the search, the officers must come to the conclusion that seizure is not practicable.
4. Officers must ‘record reasons’ for why seizure is not practicable
5. Officers must also satisfy the reason of apprehension that property would be transferred (or otherwise dealt with) in case freezing orders are not passed.

The authorized officer, immediately after passing of the freezing order must forward a copy of the reasons recorded for such freezing along with the material in possession to the Adjudicating authority in a sealed envelope.

Request for Retention (of Property Seized/Frozen)

The authorized officer seizing any record or property, or freezing any record or property is empowered to file an application before the Adjudicating Authority within 30 days of such seizure/freezing order, ‘requesting for the retention of such record or property’ or ‘for a continuation of the order of freezing’.

In Pearl Infrastructure Project Ltd. V The Deputy Director, Directorate of Enforcement, the Hon’ble Appellate Authority held that the intention of the legislature for retention of documents is to arm the Investigating Authority to find out the truth of the allegations through the evidence collected by way of the documents/records including digital records to come to a conclusion. Binding the hands of the Investigating Authority by refusing to retain the documents will not be in the interest of justice. The law has allowed the person from whom records are seized or frozen to obtain copies of the record. The Appellant has the right under the law that is Section 21(2) PMLA to obtain the copies of the records he required.

CONCLUSION

The power of the ED to conduct surveys, search, and seizure under PMLA, 2002 is an essential tool to prevent and investigate money laundering. However, it is important to note that these powers are not absolute, and the ED must follow due process and obtain a warrant before conducting a search and seizure. It is also important to ensure that these powers are not misused to harass innocent individuals or entities. The ED must act in a fair and impartial manner, and the courts must ensure that the ED follows due process and respects the rights of the individuals and entities being investigated.