Madras HC: Legal bar on ED’s detention, split verdict, PMLA case against Senthil Balaji

Justice Banu holds the ED to have crossed legal limits; is it time to bring the powerful central agency, an alleged tool of the union, under scrutiny?
Image: Live Law

On July 4, the Madras High Court bench comprising of Justices D. Bharatha Chakravarthy and J. Nisha Banu delivered a split verdict in the Habeas Corpus plea filed by S Megala, wife of Tamil Nadu Minister V. Senthil Balaji, against his arrest by the Enforcement Directorate (ED) on June 14.

While the two judges may have agreed on the aspect of maintainability, they had differed on the issue of the powers of the ED to seek custody and the legality of the minister’s arrest.

The ED had arrested Balaji in a case based on accusations for money laundering associated with the cash-for-jobs scam that he was allegedly involved during his tenure as the Transport Minister between 2011 and 2016.

While delivering the judgment, Justice J. Nisha Banu of the division bench had made some crucial observations regarding the issue of the powers of the ED to seek custody of an arrested person. Justice Banu had held that the Habeas Corpus petition was maintainable since the order of custody passed by the Principal Session Judge was without jurisdiction and authority, and therefore, illegal. She had further observed that since the ED officers do not have the powers of a Station House Officer under the Prevention of Money Laundering Act (PMLA), they could not have moved for custody of the Minister.

Under the present scheme, the officers empowered to arrest under Sec 19 of PMLA, 2002, are required to produce the accused to the competent court within 24 hours of arrest and seek only judicial remand and the same may be ordered by the judicial magistrate under the extant provisions of the Act. In effect, ED cannot hold custody of any person beyond the first 24 hrs of arrest,” said Justice Banu, as provided by LiveLaw.

Power of ED to seek custody of the persons arrested:

Following are the observations made by Justice Banu in her verdict regarding the powers of the ED, it’s the misuse and bypass of law:

On the question of ED’s powers to seek police custody, Justice Banu observed that since the officers under the PMLA are not given powers of a police officer, they could not seek police custody. She emphasised that the officers empowered to make arrest under Section 19 of the PMLA are primarily required to produce the accused to the competent court within 24 hours of arrest and can only seek judicial remand.

“It is the scheme of the Constitution and the statutes that no person shall be detained beyond 24 hours for any offence under any law passed by the parliament except under a judicial order passed by a competent court. This applies to all investigating agencies including Police officers. Meaning, an accused or suspect will be available for custodial interrogation immediately after arrest for 24 hours for all agencies after which they have to necessarily produce the detenu to a competent court for further orders.” the judge said in her judgment. (Para 8.4)

Justice Banu further opined that though normally CrPC governs the powers of arrest, search and seizure, these powers are entrusted to Officers enforcing the Special Acts like NDPS, Customs, FERA, PMLA etc.

“Usually, the officers who file final report under Sec 173 CrPC after completion of investigation are police officers. The officers under special laws usually file complaint (Private) under Section 200 of CrPC after investigations. However, that alone is not the test to determine whether a particular officer has the powers of a police officer or not though it is the dominant test. The colour and character of the powers entrusted with the officers will determine whether the officers enforcing special enactments can be termed as police officers,” the judge said in her judgment. (Para 8.2)

Furthermore, Justice Banu observed that since custody heavily impinges on the fundamental right of citizens, Section 167 of the CrPC is the lone provision under which it can be awarded. No special act has ever intended to empower officers to seek custody otherwise than through the provisions of Sec 167 CrPC.

Wherever officers are empowered to conduct investigations, the machinations of CrPC becomes applicable. If any of the above provisions is violated the detention becomes illegal. Thus parliament has consciously maintained a balance between the fundamental right to liberty and the need for restraining persons in conflict with laws and the need for custodial detention to conduct investigations,” Justice Banu stated in the judgment. (Para 8.4)

Justice Banu also provided that it has been indicated in The Central Excise Act, 1944, The CGST Act, 2017 and FERA, 1973 that Section 167 applies to only those officers who enjoy the powers of a station house officer by virtue of them being empowered to act as an officer in charge of a police station under the CrPC and the concerned special acts.

“Similar provisions to empower ED Officers as Station House Officers are not provided under PMLA, 2002. It appears that the Parliament has consciously omitted to confer with the ED Officers acting under PMLA, 2002 the power of a Station House Officer,” Justice Banu stated in the judgment. (Para 8.5)

The judge subsequently added that the decision to not empower ED Officers appears “a conscious bridle considering the sweeping powers granted to the authorities under the Act. Though the offences of Money Laundering is distinct from any or all of the scheduled offences under PMLA, 2002, there is a bar on the ED officials to suo-moto file ECIR for the offence of money laundering. An FIR or Complaint by a competent authority in a predicate offence is a sine qua non for ED officials to initiate a proceeding under the PMLA,” Justice Banu provided in the judgment. (Para 8.8)

Furthermore, Justice Banu pointed that Chapter IV of PMLA, 2002 obligates the Banking Companies, Financial Institutions and intermediaries that are normally touted as the routes to integrate laundered money back into the system to provide information to the Enforcement Directorate officials in the format so desired and keep records.

“It is a sweeping power that can help identify the trails of the proceeds of crime and the trails of the laundered money to confiscate property that are proceeds of crime so also to complete substantial meaningful investigations. It was observed by the Hon’ble Supreme Court in the case of Vijay Madanlal Choudhary & Ors vs UOI & ors the proceeding under PMLA, 2002 is more in the nature of inquiry proceedings and not investigations. The collection of evidences to track the POC and money laundering trail are predominantly documentary in nature. Therefore, it appears that the Parliament in its wisdom did not see the need for custodial interrogation for proceedings under PMLA, 2002 beyond the first 24 hours of arrest.” (Para 8.9)

Regarding the maintainability of the Habeas Corpus petition, Justice Banu pointed out that while, on the face of law, it could seem that the said petition cannot be maintained once a legal remand order is issued, the same would rely on the nature of the detention.

Justice Banu drew distinctions between preventive detention and detention for an offence, noting that while in the former, a breach of procedural safeguards is of no consequence following a valid judicial remand, in the latter, a breach of procedural safeguards at the time of arrest will vitiate the proceedings and a writ of habeas corpus would be admissible.

Justice Banu also pointed out that on June 16, the Principal Sessions Judge remanded Balaji to police custody for an eight-day period, despite the fact that on June 15, the High Court had clearly stated in its interim order that he would remain in judicial custody.

Justice Banu thus concluded that the Principal Sessions Judge’s custody order was unconstitutional since it was made without jurisdiction and without legal authority because the ED employees lacked the authority of a police officer to request custody.

The order fails the test of legality both of law and omission to follow judicial discipline and we have no hesitation to hold that the detention at the time of hearing the Habeas Corpus Petition is illegal. Accordingly, we hold that Habeas Corpus Petition is maintainable in the facts and circumstances of this case,” she noted in Para 9.9 and Para 9.10 of the judgment.

The judgment can be read here:

From the verdict pronounced by Justice Banu as well as the reasonings provided in the judgment, it can be said that, in the assessment of this Judge, the ED crossed all  limitations placed on the agency, provided under the PMLA while seeking police custody as they did not have the required entrusted powers.

Notably, the said petition has now been placed by the Chief Justice of Madras High Court SV Gangapurwala before Justice CV Karthikeyan of the Madras High Court.

“Drastic powers given to ED”: Harish Salve to the Supreme Court

On the same day, July 4, Senior Advocate Harish Salve, while appearing on behalf of directors of realty group M3M, told the Supreme Court that the ED has been vested with enormous powers in probing money laundering cases and should be reined in lest it endangers individual liberty.

These are drastic powers given to the ED. If Lordships do not rein them in, no one is safe in this country. See how the arrest was done. They were cooperating. Arrest was in violation of my rights then surely this Court can… These powers need to be reined in. 14 days they have been inside,” Salve had told a bench of Justices AS Bopanna and MM Sundresh, as provided by the Bar&Bench.

Justice Sundresh, in a lighter vein, had also remarked, “You are right. It is a cat-and-mouse game. They are using the law.”

Herein, the Supreme Court was hearing a batch of pleas, including challenges to a recent Delhi High Court order that had refused to interfere with the arrest of M3M directors, Basant Bansal and Pankaj Bansal in a money-laundering investigation related to a bribery case against a former judge.


Need to bring the Enforcement Directorate under scanner?

In the month of May, 2023, more than 500 citizens, rights activists, women’s groups, students and academics had written an open letter condemning the “misuse” of the PMLA and ED against scholars and activists who are raising constitutional issues and accountability from the government.  In the said letter, the following was written, “several women scholars and activists have been summoned repeatedly, made to wait long hours, often interrogated without any woman officer present throughout, asked to furnish documents over and over again, in an Enforcement Directorate investigation”, said a report in the Wire. It was further written that hat the ED should exercise “great responsibility and discernment in the persons and cases where they choose to use the PMLA, and certainly not use it to intimidate opponents, activists and intellectuals.”

The opposition parties have accused the Bharatiya Janata Party (BJP) of misusing federal agencies multiple times over the years. With the general elections coming up in the following year, the opposition has criticised the Bharatiya Janata Party for frequently employing the Enforcement Directorate against its political rivals.

Significantly, the Union government changed money laundering rules even in the month of March, greatly expanding the window through which the ED can examine the financial records of people and organisations. It was determined that the aforementioned action would have broad ramifications because it greatly increased the already expansive range of powers of the central agency.

In September 2021, a report by the Financial Express had provided that 121 political leaders were booked by the ED since the PM Narendra Modi came to power in the year 2014, and out of that number, as many as 115, or 95% of them are opposition party members.

The PMLA law has faced several criticisms, which include non-reporting of grounds of arrest, arrest of persons without ECIR (similar to FIR) copy, strict bail conditions, etc. Even last year, in the month of August, a PMLA Court had referred to the ED as a “vengeful complainant,” and had stated that the ED cannot seek an extension of custody “eccentrically and whimsically.”

Unfortunately, however, by an comprehensive judgement July 27, 2022, the Supreme Court (‘SC’) in the case of Vijay Madanlal Choudhary v. Union of India, upheld the constitutional validity of various provisions of the Prevention of Money Laundering Act, 2022 (‘PMLA’), including Sections 3, 5, 17, 19, 45 and 50.


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