1. Sections 48 & 49 of the PMLA empower the ED officers to investigate cases of Money Laundering.

Case 1: Suman Sehgal vs Union of India

• Section 37(3) does not refer to any express provision of the Income Tax Act. The only conclusion which can be therefore logically read is that there is no pre-condition that any ‘proceeding’ ought to be pending against a particular or specified individual nor is the pre-requisite for the exercise of such power dependent upon existing judicial proceedings. If there are certain matters under the investigation of the concerned authority, it can invoke the power under Section 37(3).

2. Summon an individual whose attendance is essential, whether to give evidence or to produce any records, during investigation or proceedings.

Case 2: T.T.V. Dinakaran vs. Enforcement Officer of Enforcement Directorate 

• When there is suspicion about the involvement of the petitioner in any of the transactions which are prohibited under the FERA Act, it is open to the authorities to summon the individual for inquiry. Since the documents are about the individual, it cannot be said that the investigation has no nexus with the documents called for from the petitioner. When an investigation is commenced, the authorities cannot conclude about the involvement or the non-involvement of any person until the enquiry is completed. During the enquiry, if the authorities get any information concerning the involvement of any other individual, those individuals can also be summoned by the concerned officer to complete the enquiry. When Section 40(4) of the FERA Act specifically mentions that the proceedings taken by the authorities are judicial, it is not open to the petitioner to challenge the summons issued under the said proceedings as ab initio void. The petitioner cannot claim any right under Article 21 of the Constitution of India and Section 24 of the Evidence Act, as he is not an accused.

3. Power to Seize assets

• The ED has the authority to undertake “search and seizure” against any individual based on information in the officer’s possession and by establishing in writing exact “reasons to suspect” that money laundering has occurred.

• About Section 157 CrPC, the proviso to Sections 17(1) and 18(1) was repealed by the Finance Act, 2019, thus authorizing ED to enter any property for search and seizure even without registering a scheduled crime with a Magistrate or any other competent body. This change significantly enlarged the ED’s current powers by placing Sections 17 and 18 at the same level as Section 19, where there is no prerequisite to forwarding a report under Section 157 CrPC to a Magistrate – thus removing judicial scrutiny at this point.

• The use of the terms “any offense” and “any property” allows a police officer to confiscate any property under suspicious circumstances under any act. As the Finance Act of 2019 emphasized, the crimes under the Act have always been cognizable and non-bailable, giving the ED unrestricted authority to investigate, arrest, and harass anybody under the guise of “reasonable suspicion”.

Case 3: In Abdullah Ali Balsharaf v. Directorate of Enforcement the Delhi High Court held that:

• Powers of seizure of properties is a draconian power. Grant of such authoritarian and drastic powers, without commensurate checks and balances, would militate against the principle of rule of law engrafted in the Constitution of India.

• The ED seizes a property first for purposes other than those intended and then chooses whether to apply provisions of the PMLA or Section 102 CrPC, as it has been done in Circuit. In this judgment, the Court dismissed the ED’s argument that the power of seizure is available under Section 102 CrPC, which was exercised, and therefore the freezing of the account would stay lawful. The Court concluded that the power must be exercised in the way described, or it will violate the necessity of adhering to due process under the law.

4. Power to attach property 

• If an individual is in possession of “proceeds of crime,” the ED has the authority to temporarily attach a property under Section 5(1) of the PMLA. The Adjudicating Authority confirms the attachment under Section 8(3) of the PMLA, and the Government would finally confiscate it under Section 9 of the PMLA. The existence of “proceeds of crime” is thus essential in establishing a money laundering or property attachment offence under the PMLA.

• Proceeds of crime

• Section 2(i)(u) of the PMLA divides proceeds of crime into three categories:

(1) property derived or obtained because of criminal activity.

(2) the value of such property; or

(3) if the property has been “taken or held” abroad, any other property “equivalent in value” whether held in India or abroad.

Case 4: Seema Garg vs. Deputy Director,

Directorate of Enforcement holding that the ED cannot attach tainted properties and the “deemed tainted properties” as defined in the Axis Bank case, if they don’t have a direct or indirect link, with the property derived or obtained from the commission of a scheduled offense.

Case 5: State Bank of India vs. The Joint Director

the ED continued to seize property without giving a thought to the financial consequences for the banks that used the property as collateral for their loans. The appellate tribunal, on the other hand, held that the ED cannot attach any such property mortgaged to banks per se, especially if the transaction with the bank occurred before the alleged crime, indicating that the property is not proceeds of crime and has appropriate documentation and a clear title in the borrower’s name.

5. Power to penalize

• Section 13 of the FEMA Act imposes penalties on anyone who violates the Act’s provisions, or any order or regulation issued in the exercise of the Act’s functions. When the contraventions are quantifiable, the penalty can be up to three times the total amount involved. In this aspect, the ED has vast authority in its hands to collect such payment arrears. The ED has the same powers as the authorized agencies under the ITA when it comes to income tax collection.

Case 6: Suborno Bose vs Enforcement Directorate,

the High Court has observed that men’s rea is essential for imposing a penalty for breach of civil obligations. It also noted that the penalty is remedial and coercive in its nature thus it emphasizes the fact of loss of revenue.

6. Power during adjudication proceedings

• During the adjudication of such a case, the Adjudicating Authority may decide to recommend to the ED the initiation of criminal proceedings in the same case. The ED may file a criminal complaint under Section 13(1B) after recording the Adjudicating Authority’s findings in writing. The court will only take notice of the case if ED files a written complaint with the court. If the security, exchange, or property is held in violation of FEMA or more than the government’s limit, the owner of the property will be found guilty and subject to penalties under FEMA Section 13.

Case 7: Arun K. Maitra & Ors vs Enforcement Directorate

the Company was liable for compliance for payments exceeding US$5000. The petitioners submitted that the complaint filed by ED was opposed to findings in the CBI investigation report. It was contended by the petitioners that the complaint and impugned order deserve to be quashed as the facts of the case were concealed in the complaint and the respondents failed to establish the nexus between alleged facts and the findings. The Court quashing the complaints held that the respondents, ED have deliberately ignored the investigation conducted by CBI.

7. Power to compound contraventions

• Compounding is a settlement mechanism under section 13 in which a person willingly acknowledges to violating FEMA requirements, pleads guilty, and seeks redress. It is a procedure that allows a defendant to pay a monetary penalty rather than face prosecution and lengthy legal battles. The ED and the Reserve Bank of India (RBI) have the ability under Sec 15 of FEMA to compound contraventions listed in Sec 13 of the Act.

Case 8: Brentfield Travels Co. Pvt. Ltd v. Reserve Bank of India & Anr,

The power to compound must be exercised judiciously having regard to the considerations which have been set out in the statute and in the circular issued by the Reserve Bank of India. There is no absolute right to claim a compounding of contraventions. It is for the Competent Authority to decide whether the contravention is of a technical nature or whether it is of a sensitive nature involving broader issues of national security or money laundering or serious infringement of the regulatory framework in which case a compounding cannot be allowed.