By Shaurya Talwar
Introduction
Recently, the Brazilian Authorities sought the help of Indian investigation agencies in a matter pertaining to corruption charges against the former Governor of Brazil who allegedly had hundreds of offshore accounts holding 100 million dollars in value. The Brazilian authorities alleged that 13 Million dollars was transferred to offshore accounts based in India and hence sought legal assistance in the matter under the United Nations Convention against Transnational Organised Crime, 2003 (herein referred to as PALERMO) to which both India and Brazil are signatories.
The treaty is a first binding attempt in the International arena to counter multi continental organised crimes. The ratifying states are required to provide mutual legal assistance such as extradition framework and cooperation between investigation agencies along with enacting rules and regulation for the purpose of restricting crimes which spread across the borders in reference to (1) money laundering and (2) defiance of international financial norms. Further, India and Brazil signed a ‘Strategic Action Plan’ to upgrade the bilateral relationship between the two G4 countries with the scope of providing mutual legal assistance and judicial cooperation in the domain of both civil and criminal matters. The collaborative legal assistance agreement will further bolster the commitment of both countries on their application of the PALERMO Convention.
In 2018, the Directorate of Enforcement was requested to pass a freezing order for 67 bank accounts by the Brazilian investigating authorities under the PALERMO convention. Henceforth, Enforcement Directorate freezed the bank accounts of 67 entities in 2020 in pursuance of the request under the S.60(6) of the Prevention of Money Laundering Act, 2002 read along with the PALERMO convention. The bank accounts were mechanically frozen under S.17 of PMLA and show cause notices were issued to the petitioners without delivering the ‘relied upon documents’ and reasons for such freezing orders against the said petitioners. Only affidavits were issued to the petitioner for which a reply was sought by the Adjudicating Authority.
Further, the Adjudicating Authority allowed each petitioner only 2-3 minutes during proceedings to dispute the serious allegations made by the Enforcement Directorate in an superficial application of S.8(2)(b) of PMLA, 2002 which requires the adjudicating authority to pass the order after hearing the aggrieved party. Despite failing to provide the reasonable grounds for freezing the accounts of the petitioner, the Adjudicating Authority allowed the freezing orders to continue though providing a little relief to the petitioners by only allowing the amount in dispute to be frozen by the Enforcement Directorate in deviation from the earlier orders of the ED.
Therefore, in the case of KP Sanghvi and Sons LLP vs Directorate of Enforcement, the petitioner approached the Delhi High Court, to lift the freezing order of the bank accounts passed by the Enforcement Directorate against present petitioner and 66 others including J.K. Tyres and Industries.
Miscarriage of Justice
The conduct of ED clearly elucidates mechanical sequence of actions without applying its own mind to the matter at hand. The S.60(2) of PMLA allows the Director to take action in pursuance of a request of a legal assistance as per his discretion.
While this allows for a speedy action on the request of another country, the other provisions regarding the procedure to issue freezing orders and conduct investigations laid down under the PMLA cannot be overridden in pursuance of fulfilling the duties under an International Treaty.
The PALERMO Convention on which the ED relied for its actions, clearly lays down that any action under the convention must be in accordance with the domestic laws of the country. Further, the treaty also allows the country to reject the request of another country for legal assistance under Article 18 on the grounds that (1) it may be detrimental to the public policy, security, law and order of the requested state, (2) if the matters regarding which assistance is sought, is itself illegal under the domestic laws of the state seeking assistance and (3) if executing such request may go against the domestic laws of the country from whom legal assistance is sought.
Further, even the provision of S.58 of the PMLA clearly mentions that any assistance to be provided to another country has to be in the confines of the provisions of the law of the requested country.
The provisions of the treaty clearly provide the scope for introspection by the domestic authorities to take an action as they deem fit in pursuance of their domestic laws and public interest. The Supreme Court has repeatedly laid down that the international treaty can only be applied in pursuance of the domestic laws of the country and as and when there is a dispute between domestic laws and international treaty, the former shall always be given preference.
In a situation where the statute itself provides a large discretion to the investigating bodies, the role of principles of natural justice becomes much more paramount. The Enforcement Directorate has maintained an anonymity in its decision making, since there is no known reasonable ground other than a request from an across the continent investigation agency.. Unfortunately, despite many requests to the investigative agencies, they have denied providing reasons for its actions under the pretext of application of the PALERMO convention.
Even though the rules of the Indian Evidence Act, 1872 do not apply to the quasi-judicial bodies, the gap has to be filled by the adjudicating authorities by applying tenets of natural justice. The Supreme Court has clarified the ‘no evidence’ rule which mentions that there has to be some evidence if not constructive evidence under the accepted norms of evidence law. Therefore, mere affidavit by the ED does not amount to any evidence under any norm of laws to be used as a basis of coercive actions against any party. There has to be some element of the conduct of the aggrieved party for the investigation agencies to reply upon.
The parties were denied to be given a reasonable chance to be heard and deny the allegations by providing an ostensible chance to speak for mere 2-3 minutes considering the quantum and repercussions of the charges. This also goes against the right to be heard of the petitioner.
Further, the exercise of discretionary power of the ED and the Adjudicating authority clearly violates the Doctrine of Proportionality which requires the authorities to be sensitive of their exercise of discretion so that the repercussions of their actions should not be far reaching than what have ought to fulfil the required result. Due to Covid-19, the PMLA Appellate tribunal was suspended which caused further grievance to the aggrieved parties as under the extraordinary circumstances where there was a nationwide lockdown, the parties were disposed of their necessary financial resources and to exercise their right to appeal against the draconian orders of the ED. In addition, the ED by failing to direct the bank officials, maintained an unofficial freezing of the complete bank accounts of the accused despite directions from the adjudicating authorities to only secure the amount in dispute. Therefore, the actions of the investigating body and adjudicating authority have by all means disproportionately affected the rights of the aggrieved party and disregarded the element of ‘proper balance’ laid down in K.S. Puttaswamy v. Union of India in regards to the test of proportionality.
The Way Forward
In the case of Opto Circuit vs. Axis Bank the Court criticised the modus operandi of the investigating agencies and held that if a statute provides for a particular procedure and manner of conduct then that has to be strictly followed and not the general law. In this case too, the Enforcement Directorate freezed the bank accounts of the appellants without following the procedure under the Prevention of Money Laundering Act, 2002. The court recognised the due importance of the procedure that is laid down in Section 17 of the PMLA and that the statute not only provides for prevention of money laundering but also the protection of the rights of the accused from any arbitrary actions of the authorities. The actions of the ED are clearly in contradiction of this judgement of the Supreme Court.
The importance of following statutory procedures has been upheld numerous times by the court to avoid arbitrary actions and mischief by investigation agencies. This is becoming increasingly important in light of the recent judgement of the Supreme Court which scrutinised the constitutional validity of various provisions of PMLA. The court remarked that the origin of PMLA took place from the government’s commitment to international organisations since such crimes have transnational effects. Further it remarked that it is an ‘aggravated crime’ world over and requires stringent laws.
Further, it upheld the twin condition of bail under S.45 of PMLA. The twin conditions to be satisfied are that the accused must appear prima facie not guilty of the charges and not likely to commit a similar offence along with giving the chance to the public prosecutor to oppose such bail application. This judgement reverses the earlier finding of the Supreme Court making the twin bail conditions as unreasonable and unconstitutional.
The judgement has been criticised by many stakeholders since this has the effect of further increasing the power of the investigating agencies in regards to offence under PMLA. With absolute discretion comes the inevitability of abuse of such discretion to fulfil illegal motives. With members of opposition parties frequently being raided by ED and put in jail, the courts should act more responsibly so as to weed out the mechanical and arbitrary conduct of the investigating authorities to make sure that the rights of the accused are also protected The intent of the act is to not only prosecute economic offenders but also prevent such offenders from committing the crime itself, the investigating agencies have to be reminded that they have to act within the purview of the law despite the fact that the playing field is already wide under the law.
Concluding Remarks
In light of the Palermo Convention, and increasing discretion of investigating agencies under PMLA, and the recently signed ‘Strategic Action Plan’ between India and Brazil, it is evident that, while it is indispensable that the aid and cooperation must be within the bounds of the law of the land and cannot be used to perform an action which is statutorily barred. Henceforth, the authorities cannot act in a mechanical way while addressing a request for legal assistance by another country under S.60 of PMLA, 2002 and PALERMO convention.
Further, the legislative intent of the parliament while adding ‘reasons to be recorded’ and forwarding all the material in possession including the ‘relied upon documents’ under s.17 of PMLA clearly elucidates the intention of eliminating arbitrariness in the actions of the investigating agency and the upkeep of the rule of law. The intent is to provide for prosecuting people for economic offences and also protect the rights of the accused from arbitrary use of discretion by the investigating agency. They have to act in a reasonable manner by recording reasons for its actions or the courts cannot proactively perform its functions if it is devoid of necessary information and the rationale of the exercise of the administrative powers by an authority.
Even though the PMLA’s origin can be traced back to the Government’s obligation to International bodies, it is a settled principle that international law can not have precedence over the domestic law but an attempt to reconcile the two can be made. It is argued that due to the transnational nature of the crime, the agencies should take cognizance of requests for legal assistance but not at the cost of overlooking its own procedures. Else, it will be a direct violation of the nation’s sovereignty and the validity of rule of law of India.
The author, Shaurya Talwar, is an undergraduate law student at Gujarat National Law University (GNLU), Gandhinagar.
United Nations Office on Drugs and Crime, Res. 55/255, Sess.55, U.N. Document A/RES/55/25, 1, available at , last seen on 22/7/2022
MInistry of External Affairs, Government of India, Action Plan to Strengthen the Strategic Partnership Between India and Brazil, available at , last seen on 2/8/2022
S.60(6), Prevention of Money Laundering Act, 2002
S.17, Prevention of Money Laundering Act, 2002
S.8(2)(b), Prevention of Money Laundering Act, 2002
KP Sanghvi and Sons, LLP v Directorate of Enforcement, 2021 Latest Caselaw 2929 Del
United Nations Office on Drugs and Crime, Res. 55/255, Sess.55, U.N. Document A/RES/55/25, 13, available at , last seen on 22/7/2022
United Nations Office on Drugs and Crime, Res. 55/255, Sess.55, U.N. Document A/RES/55/25, 19, available at , last seen on 22/7/2022
S.58, Prevention of Money Laundering Act, 2002
Bhavesh Jayanti Lakhani vs. State of Maharashtra, (2009) 9 SCC 551
M/s.Steel Authority of India Ltd., v. STO, Rourkela-I Circle & Ors., 2008 (5) Supreme 281
S.5, Indian Evidence Act, 1872
State of Haryana vs. Rattan Singh, (1977) 2 SCC 491
Union of India v. G. Ganayutham, (1997) 7 SCC 463
K.S. Puttaswamy v. Union of India, (2019) 1 SCC 1
Opto Circuit vs Axis Bank, 2021 SCC OnLine SC 55
State of Uttar Pradesh v. Singhan Singh & Ors., AIR 1964 SC 35
Vijay Madanlal Choudhary vs Union of India, 2022 LiveLaw (SC) 633
S.45, Prevention of Money Laundering Act, 2002
Nikesh Tarachand Shah vs. Union of India (2018) 11 SCC 1
Introduction
Recently, the Brazilian Authorities sought the help of Indian investigation agencies in a matter pertaining to corruption charges against the former Governor of Brazil who allegedly had hundreds of offshore accounts holding 100 million dollars in value. The Brazilian authorities alleged that 13 Million dollars was transferred to offshore accounts based in India and hence sought legal assistance in the matter under the United Nations Convention against Transnational Organised Crime, 2003 (herein referred to as PALERMO) to which both India and Brazil are signatories.
The treaty is a first binding attempt in the International arena to counter multi continental organised crimes. The ratifying states are required to provide mutual legal assistance such as extradition framework and cooperation between investigation agencies along with enacting rules and regulation for the purpose of restricting crimes which spread across the borders in reference to (1) money laundering and (2) defiance of international financial norms. Further, India and Brazil signed a ‘Strategic Action Plan’ to upgrade the bilateral relationship between the two G4 countries with the scope of providing mutual legal assistance and judicial cooperation in the domain of both civil and criminal matters. The collaborative legal assistance agreement will further bolster the commitment of both countries on their application of the PALERMO Convention.
In 2018, the Directorate of Enforcement was requested to pass a freezing order for 67 bank accounts by the Brazilian investigating authorities under the PALERMO convention. Henceforth, Enforcement Directorate freezed the bank accounts of 67 entities in 2020 in pursuance of the request under the S.60(6) of the Prevention of Money Laundering Act, 2002 read along with the PALERMO convention. The bank accounts were mechanically frozen under S.17 of PMLA and show cause notices were issued to the petitioners without delivering the ‘relied upon documents’ and reasons for such freezing orders against the said petitioners. Only affidavits were issued to the petitioner for which a reply was sought by the Adjudicating Authority.
Further, the Adjudicating Authority allowed each petitioner only 2-3 minutes during proceedings to dispute the serious allegations made by the Enforcement Directorate in an superficial application of S.8(2)(b) of PMLA, 2002 which requires the adjudicating authority to pass the order after hearing the aggrieved party. Despite failing to provide the reasonable grounds for freezing the accounts of the petitioner, the Adjudicating Authority allowed the freezing orders to continue though providing a little relief to the petitioners by only allowing the amount in dispute to be frozen by the Enforcement Directorate in deviation from the earlier orders of the ED.
Therefore, in the case of KP Sanghvi and Sons LLP vs Directorate of Enforcement, the petitioner approached the Delhi High Court, to lift the freezing order of the bank accounts passed by the Enforcement Directorate against present petitioner and 66 others including J.K. Tyres and Industries.
Miscarriage of Justice
- Mechanical Conduct of the Authorities
The conduct of ED clearly elucidates mechanical sequence of actions without applying its own mind to the matter at hand. The S.60(2) of PMLA allows the Director to take action in pursuance of a request of a legal assistance as per his discretion.
While this allows for a speedy action on the request of another country, the other provisions regarding the procedure to issue freezing orders and conduct investigations laid down under the PMLA cannot be overridden in pursuance of fulfilling the duties under an International Treaty.
The PALERMO Convention on which the ED relied for its actions, clearly lays down that any action under the convention must be in accordance with the domestic laws of the country. Further, the treaty also allows the country to reject the request of another country for legal assistance under Article 18 on the grounds that (1) it may be detrimental to the public policy, security, law and order of the requested state, (2) if the matters regarding which assistance is sought, is itself illegal under the domestic laws of the state seeking assistance and (3) if executing such request may go against the domestic laws of the country from whom legal assistance is sought.
Further, even the provision of S.58 of the PMLA clearly mentions that any assistance to be provided to another country has to be in the confines of the provisions of the law of the requested country.
The provisions of the treaty clearly provide the scope for introspection by the domestic authorities to take an action as they deem fit in pursuance of their domestic laws and public interest. The Supreme Court has repeatedly laid down that the international treaty can only be applied in pursuance of the domestic laws of the country and as and when there is a dispute between domestic laws and international treaty, the former shall always be given preference.
- Violation of Principles of Natural Justice
In a situation where the statute itself provides a large discretion to the investigating bodies, the role of principles of natural justice becomes much more paramount. The Enforcement Directorate has maintained an anonymity in its decision making, since there is no known reasonable ground other than a request from an across the continent investigation agency.. Unfortunately, despite many requests to the investigative agencies, they have denied providing reasons for its actions under the pretext of application of the PALERMO convention.
Even though the rules of the Indian Evidence Act, 1872 do not apply to the quasi-judicial bodies, the gap has to be filled by the adjudicating authorities by applying tenets of natural justice. The Supreme Court has clarified the ‘no evidence’ rule which mentions that there has to be some evidence if not constructive evidence under the accepted norms of evidence law. Therefore, mere affidavit by the ED does not amount to any evidence under any norm of laws to be used as a basis of coercive actions against any party. There has to be some element of the conduct of the aggrieved party for the investigation agencies to reply upon.
The parties were denied to be given a reasonable chance to be heard and deny the allegations by providing an ostensible chance to speak for mere 2-3 minutes considering the quantum and repercussions of the charges. This also goes against the right to be heard of the petitioner.
Further, the exercise of discretionary power of the ED and the Adjudicating authority clearly violates the Doctrine of Proportionality which requires the authorities to be sensitive of their exercise of discretion so that the repercussions of their actions should not be far reaching than what have ought to fulfil the required result. Due to Covid-19, the PMLA Appellate tribunal was suspended which caused further grievance to the aggrieved parties as under the extraordinary circumstances where there was a nationwide lockdown, the parties were disposed of their necessary financial resources and to exercise their right to appeal against the draconian orders of the ED. In addition, the ED by failing to direct the bank officials, maintained an unofficial freezing of the complete bank accounts of the accused despite directions from the adjudicating authorities to only secure the amount in dispute. Therefore, the actions of the investigating body and adjudicating authority have by all means disproportionately affected the rights of the aggrieved party and disregarded the element of ‘proper balance’ laid down in K.S. Puttaswamy v. Union of India in regards to the test of proportionality.
The Way Forward
In the case of Opto Circuit vs. Axis Bank the Court criticised the modus operandi of the investigating agencies and held that if a statute provides for a particular procedure and manner of conduct then that has to be strictly followed and not the general law. In this case too, the Enforcement Directorate freezed the bank accounts of the appellants without following the procedure under the Prevention of Money Laundering Act, 2002. The court recognised the due importance of the procedure that is laid down in Section 17 of the PMLA and that the statute not only provides for prevention of money laundering but also the protection of the rights of the accused from any arbitrary actions of the authorities. The actions of the ED are clearly in contradiction of this judgement of the Supreme Court.
The importance of following statutory procedures has been upheld numerous times by the court to avoid arbitrary actions and mischief by investigation agencies. This is becoming increasingly important in light of the recent judgement of the Supreme Court which scrutinised the constitutional validity of various provisions of PMLA. The court remarked that the origin of PMLA took place from the government’s commitment to international organisations since such crimes have transnational effects. Further it remarked that it is an ‘aggravated crime’ world over and requires stringent laws.
Further, it upheld the twin condition of bail under S.45 of PMLA. The twin conditions to be satisfied are that the accused must appear prima facie not guilty of the charges and not likely to commit a similar offence along with giving the chance to the public prosecutor to oppose such bail application. This judgement reverses the earlier finding of the Supreme Court making the twin bail conditions as unreasonable and unconstitutional.
The judgement has been criticised by many stakeholders since this has the effect of further increasing the power of the investigating agencies in regards to offence under PMLA. With absolute discretion comes the inevitability of abuse of such discretion to fulfil illegal motives. With members of opposition parties frequently being raided by ED and put in jail, the courts should act more responsibly so as to weed out the mechanical and arbitrary conduct of the investigating authorities to make sure that the rights of the accused are also protected The intent of the act is to not only prosecute economic offenders but also prevent such offenders from committing the crime itself, the investigating agencies have to be reminded that they have to act within the purview of the law despite the fact that the playing field is already wide under the law.
Concluding Remarks
In light of the Palermo Convention, and increasing discretion of investigating agencies under PMLA, and the recently signed ‘Strategic Action Plan’ between India and Brazil, it is evident that, while it is indispensable that the aid and cooperation must be within the bounds of the law of the land and cannot be used to perform an action which is statutorily barred. Henceforth, the authorities cannot act in a mechanical way while addressing a request for legal assistance by another country under S.60 of PMLA, 2002 and PALERMO convention.
Further, the legislative intent of the parliament while adding ‘reasons to be recorded’ and forwarding all the material in possession including the ‘relied upon documents’ under s.17 of PMLA clearly elucidates the intention of eliminating arbitrariness in the actions of the investigating agency and the upkeep of the rule of law. The intent is to provide for prosecuting people for economic offences and also protect the rights of the accused from arbitrary use of discretion by the investigating agency. They have to act in a reasonable manner by recording reasons for its actions or the courts cannot proactively perform its functions if it is devoid of necessary information and the rationale of the exercise of the administrative powers by an authority.
Even though the PMLA’s origin can be traced back to the Government’s obligation to International bodies, it is a settled principle that international law can not have precedence over the domestic law but an attempt to reconcile the two can be made. It is argued that due to the transnational nature of the crime, the agencies should take cognizance of requests for legal assistance but not at the cost of overlooking its own procedures. Else, it will be a direct violation of the nation’s sovereignty and the validity of rule of law of India.
The author, Shaurya Talwar, is an undergraduate law student at Gujarat National Law University (GNLU), Gandhinagar.
United Nations Office on Drugs and Crime, Res. 55/255, Sess.55, U.N. Document A/RES/55/25, 1, available at , last seen on 22/7/2022
MInistry of External Affairs, Government of India, Action Plan to Strengthen the Strategic Partnership Between India and Brazil, available at , last seen on 2/8/2022
S.60(6), Prevention of Money Laundering Act, 2002
S.17, Prevention of Money Laundering Act, 2002
S.8(2)(b), Prevention of Money Laundering Act, 2002
KP Sanghvi and Sons, LLP v Directorate of Enforcement, 2021 Latest Caselaw 2929 Del
United Nations Office on Drugs and Crime, Res. 55/255, Sess.55, U.N. Document A/RES/55/25, 13, available at , last seen on 22/7/2022
United Nations Office on Drugs and Crime, Res. 55/255, Sess.55, U.N. Document A/RES/55/25, 19, available at , last seen on 22/7/2022
S.58, Prevention of Money Laundering Act, 2002
Bhavesh Jayanti Lakhani vs. State of Maharashtra, (2009) 9 SCC 551
M/s.Steel Authority of India Ltd., v. STO, Rourkela-I Circle & Ors., 2008 (5) Supreme 281
S.5, Indian Evidence Act, 1872
State of Haryana vs. Rattan Singh, (1977) 2 SCC 491
Union of India v. G. Ganayutham, (1997) 7 SCC 463
K.S. Puttaswamy v. Union of India, (2019) 1 SCC 1
Opto Circuit vs Axis Bank, 2021 SCC OnLine SC 55
State of Uttar Pradesh v. Singhan Singh & Ors., AIR 1964 SC 35
Vijay Madanlal Choudhary vs Union of India, 2022 LiveLaw (SC) 633
S.45, Prevention of Money Laundering Act, 2002
Nikesh Tarachand Shah vs. Union of India (2018) 11 SCC 1