PMLA and Property Freeze: A Case Analysis
The Prevention of Money Laundering Act, 2002 (PMLA) is a law that aims to prevent and punish the crime of money laundering, which involves concealing or transferring the proceeds of crime to evade prosecution or taxation. The PMLA empowers the Enforcement Directorate (ED) to investigate and prosecute money laundering offences, and also to attach or freeze the properties involved in or derived from such offences. The PMLA also provides for the establishment of an Adjudicating Authority and an Appellate Tribunal to deal with the matters relating to attachment and confiscation of properties under the PMLA.
In this chat, we discussed a recent judgment of the Kerala High Court, which held that an order of freezing a property under Section 17(1-A) of the PMLA is not valid if the Enforcement Case Information Report (ECIR) against the accused has been quashed and no FIR has been registered subsequently. We also discussed the meaning and scope of ECIR, Section 17(1-A), and the schedule to the PMLA.
ECIR: What is it and how is it registered?
ECIR stands for Enforcement Case Information Report, which is an internal document of the ED that records the information related to the commission of a scheduled offence under the PMLA. It is not shared with the accused or the public, and it is not equivalent to an FIR registered by the police. The ED can register an ECIR based on an FIR, a complaint, or any other reliable source of information that indicates the occurrence of money laundering.
The ECIR is considered as the starting point of investigation under the PMLA, and it enables the ED to exercise its powers under Sections 17, 18, and 19 of the PMLA. These sections empower the ED to search, seize, freeze, arrest, and interrogate any person or property in relation to money laundering offences. The ECIR also serves as a basis for filing a complaint before the Special Court under Section 45 of the PMLA for trial and conviction of the accused.
Section 17(1-A): What does it say and when can it be invoked?
Section 17(1-A) of PMLA empowers an authorized officer to freeze a property, where it would not practically be possible for such authority to search or seize the record or property. This power is subject to certain conditions and safeguards, such as recording reasons in writing, informing the Adjudicating Authority within 24 hours, and giving an opportunity of hearing to the person affected. The text of Section 17(1-A) is as follows:
“Where it is not practicable to seize such record or property, the officer authorised under sub-section (1), may make an order to freeze such property whereupon the property shall not be transferred or otherwise dealt with, except with the prior permission of the officer making such order, and a copy of such order shall be served on the person concerned.”
The purpose of Section 17(1-A) is to prevent any tampering or disposal of property that may be involved in or derived from money laundering offences. The power under Section 17(1-A) can be invoked only when there is a reason to believe that such property is likely to be concealed, transferred, or dealt with in any manner which may result in frustrating any proceedings relating to confiscation of such property under Chapter III of PMLA. The power under Section 17(1-A) can also be exercised only after obtaining prior approval from an officer not below the rank of Deputy Director.
Schedule to PMLA: What does it contain and why is it relevant?
The schedule to PMLA lists all the offences that are considered as predicate offences for money laundering. These offences are divided into three parts: Part A, Part B, and Part C. Part A contains offences under various laws such as Indian Penal Code, Narcotic Drugs and Psychotropic Substances Act, Arms Act, Wildlife (Protection) Act, etc. Part B contains offences that are punishable with imprisonment for more than three years under any law other than those listed in Part A. Part C contains offences under foreign laws that are equivalent to those listed in Part A or Part B. The schedule to PMLA is relevant because it defines the scope and applicability of PMLA to various crimes and activities that generate proceeds of crime.
The schedule to PMLA also determines whether an offence is cognizable or non-cognizable for the purpose of investigation by ED. A cognizable offence is one where the ED can arrest the accused without a warrant and start the investigation without the permission of a court. A non-cognizable offence is one where the ED cannot arrest the accused without a warrant and has to obtain the permission of a court before starting the investigation. The offences listed in Part A of the schedule are cognizable, while the offences listed in Part B and Part C are non-cognizable.
The Kerala High Court Judgment: What was the issue and what was the decision?
The Kerala High Court judgment that we discussed was delivered on September 20, 2023, by a division bench comprising Justice K. Vinod Chandran and Justice M.R. Anitha. The judgment was in response to a writ petition filed by one Abdul Salam, who challenged an order of freezing his property under Section 17(1-A) of PMLA.
The petitioner was accused of being involved in a terror funding case, where he allegedly received money from Pakistan through hawala channels and used it to fund terrorist activities in Jammu and Kashmir. The ED registered an ECIR against him based on an FIR registered by the National Investigation Agency (NIA) under various sections of the Unlawful Activities (Prevention) Act, 1967 (UAPA) and the RPC. The ED also issued an order under Section 17(1-A) to freeze his property worth Rs. 1.5 crore, which included his house, land, and bank accounts.
The petitioner challenged both the ECIR and the freezing order before the Kerala High Court. He argued that the ECIR was illegal and arbitrary, as it was based on an FIR that did not disclose any offence under the PMLA. He also argued that the offences under the RPC, which he was accused of, were not included in the schedule to PMLA, and therefore, he could not be prosecuted under PMLA. He further argued that the freezing order was unjustified and violative of his fundamental rights, as it deprived him of his property without any valid basis or procedure.
The Kerala High Court quashed the ECIR against the petitioner on the ground that it did not disclose any scheduled offence under PMLA. The court observed that the FIR registered by NIA did not mention any offence under Part A or Part B of the schedule to PMLA, and therefore, it could not form the basis for registering an ECIR under PMLA. The court also held that the offences under RPC were covered by PMLA as corresponding laws, as they were substitutes of IPC in Jammu and Kashmir. However, the court noted that none of the offences under RPC alleged against the petitioner were punishable with imprisonment for more than three years, and therefore, they fell under Part C of the schedule to PMLA, which required prior permission of a court for investigation by ED. The court found that no such permission was obtained by ED before registering the ECIR against the petitioner.
The Kerala High Court also set aside the freezing order issued by ED under Section 17(1-A) of PMLA on the ground that it was based on an ECIR that had been quashed by the court. The court held that once the ECIR was quashed, there was no basis for continuing the investigation or freezing the property of the petitioner under PMLA. The court held that such an order would cause prejudice to the petitioner and could not be allowed to hold the field. The court therefore directed ED to release his property forthwith.
The Kerala High Court judgment is a significant one, as it highlights the importance of adhering to the legal requirements and safeguards while exercising the powers under PMLA. The judgment also clarifies some of the key aspects of PMLA, such as ECIR, Section 17(1-A), and schedule to PMLA. The judgment also shows how different laws can interact and overlap in cases involving money laundering and terror funding, and how courts have to balance between national security and individual rights while dealing with such cases.