SC asks ED chief to quit, but upholds amendments

Context: In a recent development, the Supreme Court has asked Sanjay Kumar Mishra, the Director of the Enforcement Directorate (ED), to resign four months before his third extension, which was originally scheduled to end in November.

Alongside this decision, the court upheld certain statutory amendments that allow for the prolongation of the tenures of Directors of the Central Bureau of Investigation (CBI) and the ED in a gradual manner.
Previously, the CBI and ED chiefs held fixed tenures of two years, but the amendments introduced in 2021 to the Central Vigilance Commission Act, the Delhi Special Police Establishment Act, and the Fundamental Rules now permit them to receive three annual extensions.

Directorate of Enforcement:

The Directorate of Enforcement or the ED is a multi-disciplinary organization mandated with investigation of economic crimes and violations of foreign exchange laws.

The origin of this Directorate goes back to 1956, when an ‘Enforcement Unit’ was formed in the Department of Economic Affairs for handling Exchange Control Laws violations under Foreign Exchange Regulation Act, 1947.

It was headed by a Legal Service Officer, as Director of Enforcement, assisted by an Officer drawn on deputation from Reserve Bank of India (RBI).
In 1960, the administrative control of the Directorate was transferred from the Department of Economic Affairs to the Department of Revenue.
With the passage of time, FERA, in 1947 was repealed and replaced by FERA, in 1973. Presently, the Directorate is under the administrative control of the Department of Revenue, Ministry of Finance, Government of India.
With the onset of the process of economic liberalization, FERA, 1973, which was a regulatory law, was repealed and in its place, a new law viz. the Foreign Exchange Management Act, 1999 (FEMA) was enacted in 2000.
Further, in tune with the International Anti Money Laundering regime, the Prevention of Money Laundering Act, 2002 (PMLA) was enacted and ED was entrusted with its enforcement in 2005.
Recently, with the increase in number of cases relating to economic offenders taking shelter in foreign countries, the Government has passed the Fugitive Economic Offenders Act, 2018 (FEOA) and ED is entrusted with its enforcement in 2018.

Statutory Functions:

Its functions include enforcing acts such as the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), the Foreign Exchange Management Act, 1999 (FEMA), the Prevention of Money Laundering Act, 2002 (PMLA), and the Fugitive Economic Offenders Act, 2018 (FEOA).

The Prevention of Money Laundering Act, 2002 (PMLA): It is a criminal law enacted to prevent money laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto. Under the PMLA, the ED carries out searches and seizures of properties, money, and documents deemed to be involved in money laundering offenses. It has the power to arrest individuals if necessary. The ED can also directly carry out search and seizure operations without prior summons under Section 50 of the PMLA. The agency has jurisdiction over individuals, legal entities, and public servants involved in offenses related to money laundering. However, the ED cannot initiate action on its own and requires a complaint from another agency or the police to begin an investigation
The Foreign Exchange Management Act, 1999 (FEMA): It is a civil law enacted to consolidate and amend the laws relating to facilitating external trade and payments and to promote the orderly development and maintenance of foreign exchange market in India. ED has been given the responsibility to conduct investigation into suspected contraventions of foreign exchange laws and regulations, to adjudicate and impose penalties on those adjudged to have contravened the law.
The Fugitive Economic Offenders Act, 2018 (FEOA): This law was enacted to deter economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts. It is a law whereby Directorate is mandated to attach the properties of the fugitive economic offenders who have escaped from the India warranting arrest and provide for the confiscation of their properties to the Central Government.
Sponsoring agency under COFEPOSA: Under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA), the Directorate is empowered to sponsor cases of preventive detention with regard to contraventions of FEMA.

Recent criticism of the ED

Allegations of misuse of the PMLA by the government and the agency itself.
Concerns have been raised about the inclusion of “ordinary” crimes under the PMLA and the attachment of assets belonging to innocent individuals.
Transparency and clarity regarding the selection of cases to investigate have also been questioned.
The Enforcement Case Information Report (ECIR) – an equivalent of the FIR – is considered an “internal document” and not given to the accused.
The initiation of an investigation by the ED has consequences that have the potential of curtailing the liberty of an individual.
Additionally, the efficiency and low conviction rates of the ED under the PMLA have been a subject of controversy.

The amendments of 2021:

President promulgated two ordinances that allowed the Centre to extend the tenures of the directors of the Central Bureau of Investigation and the Enforcement Directorate from two years to up to five years.
Amendments in DSPE act: Provided that the period for which the Director of CBI holds the office on his initial appointment may, in public interest, on the recommendation of the Committee (the committee led by the Prime Minister and leader of Opposition and CJI as members) and for the reasons to be recorded in writing, be extended up to one year at a time. It also provided that no such extension shall be granted after the completion of a period of five years in total including the period mentioned in the initial appointment.
Amendments in CVC act: Provided that the period for which the Director of Enforcement holds the office on his initial appointment may, in public interest, on the recommendation of the Committee (comprising of CVC chief, Revenue and Home Secretaries among others) and for the reasons to be recorded in writing, be extended up to one year at a time. It provided further that no such extension shall be granted after the completion of a period of five years in total including the period mentioned in the initial appointment.

Criticisms of the amendments:

The government could exploit the possibility of service extensions as a means to manipulate the CBI and ED Directors into aligning with its interests.

It was argued that this dynamic would exert pressure on the Directors, leading them to comply with the government’s wishes in order to secure further extensions.
The amendments contradicted the fundamental objective of safeguarding the Central investigative agencies from government influence.

Way forward:

Consensus between the adjudicating authority and the ED officers should be reached to ensure compliance with the constitutional provisions of the PMLA, making investigations more transparent.
The ED’s expanded powers should be accompanied by a commitment to resolve cases expeditiously, allowing for speedy trials and convictions.
Regular scrutiny of the agency’s operations and ongoing evaluation can lead to improvements in the conviction rate.
Any gaps or deficiencies can be addressed through suitable legislation, executive action, or revised orders from the apex court.