Investigation, Search and Seizure (Sections 16 and 17)

Inspection and calling for information are routine supervisory tools. When the Authority suspects serious wrongdoing, it needs stronger powers: to appoint an investigator who can compel documents and testimony, and in the last resort to enter premises and seize records before they are destroyed. Sections 16 and 17 of the PFRDA Act provide these powers and the safeguards that go with them.

1. Power to Order an Investigation (Section 16(1))

• Threshold: a reasonable ground to believe, which is an objective standard. Mere suspicion or a rumour is not enough, but proof is not required either.
• Two grounds: (a) activities of the pension fund conducted to the detriment of subscribers; or (b) a violation of the Act, rules, regulations or the Authority's directions by an intermediary or associated person.
• Form: an order in writing, naming the Investigating Authority.
• Who may investigate: any person specified in the order. This may be an officer of PFRDA or an outside expert, such as a firm of chartered accountants with forensic expertise.
• Outcome: a report to the Authority, which then decides what action to take.

2. Duty to Preserve and Produce Records (Section 16(2) and (3))

• Persons bound: every manager, managing director, officer and other employee of a company; every intermediary and person or entity required to be registered under Section 27; and every person associated with the pension fund.
• Duty to preserve and produce: they must preserve and produce to the Investigating Authority, or any person authorised by it, all books, registers, other documents and records in their custody or power relating to the matter under investigation, and give all assistance they reasonably can.
• Power to require information: the Investigating Authority may require any intermediary or associated person to furnish information or produce documents it considers necessary for the investigation.
• Companies Act saved: the duty operates without prejudice to the inspection and investigation provisions of company law, so PFRDA's powers add to, and do not displace, those of company law authorities.

3. Retention of Documents

• Retention period: the Investigating Authority may keep books and documents produced to it for up to six months, and must then return them.
• Extension: it may call for them again if needed, and the Authority may approve longer retention, but not beyond thirty days after the completion of all proceedings to which the documents are relevant.
• Certified copies: the person from whom documents are taken is entitled to certified copies on request.

4. Examination on Oath (Section 16(5) and (6))

• Examination: the Investigating Authority may examine on oath any manager, officer, employee, intermediary or associated person in relation to the affairs under investigation, and may require personal appearance.
• Record: notes of the examination are taken down in writing, read over to or by the person examined, and signed by him.
• Evidentiary use: the notes may thereafter be used in evidence against him. Because the examination is part of a regulatory investigation and not a criminal trial, the statement may later be used in proceedings under the Act.

5. Penalty for Obstruction (Section 16(7))

A person who, without reasonable cause, fails or refuses:

• (a) to produce any book, register, document or record that he is bound to produce;
• (b) to furnish information he is bound to furnish;
• (c) to appear personally before the Investigating Authority, or to answer any question put to him; or
• (d) to sign the notes of his examination,

is punishable with imprisonment up to one year, or fine up to twenty-five crore rupees, or both, and a further fine up to ten lakh rupees for every day after the first during which the failure continues. The size of the fine reflects the scale of funds involved and the need to make obstruction more costly than cooperation.

6. Search and Seizure (Section 17(1))

Grounds

Where the Authority, in consequence of information in its possession, has reason to believe that:

• (a) a person required to produce documents under Section 16(3) has failed to produce them;
• (b) a person to whom such a requisition has been or might be issued would not produce documents useful for or relevant to an investigation;
• (c) a contravention of the Act has been or is likely to be committed by an intermediary;
• (d) a claim due to be settled by an intermediary has been or is likely to be rejected or settled at a figure higher than a reasonable amount;
• (e) such a claim has been or is likely to be rejected or settled at a figure lower than a reasonable amount;
• (f) illegal fees and charges have been or are likely to be transacted by an intermediary; or
• (g) books, accounts, papers, receipts, vouchers, reports or other documents of an intermediary are likely to be tampered with, falsified or manufactured,

it may authorise any officer of the Authority not below the rank equivalent to a Gazetted Officer of the Government (the authorised officer) to act.

Powers of the authorised officer

• (i) enter and search any building or place where he has reason to suspect that relevant books, accounts or documents are kept;
• (ii) break open the lock of any box, locker, safe, almirah or other receptacle where the keys are not available;
• (iii) seize any such books, accounts or documents found in the search;
• (iv) place marks of identification on them, or make extracts or copies.

7. Supporting Provisions and Safeguards (Section 17(2) to (10))

• Police assistance: the authorised officer may requisition the assistance of police officers, who are bound to comply with the requisition.
• Prohibitory order: where seizure is not practicable, the officer may serve an order on the owner or person in possession not to remove, part with or deal with the documents without his permission.
• Examination on oath: during the search, the officer may examine on oath any person in possession or control of books or documents, and the statement may be used in evidence in proceedings under the Act.
• Retention limit: seized documents may not be kept beyond 180 days unless the reasons are recorded in writing and the Authority approves; even then, not beyond thirty days after the completion of proceedings.
• Copies: the person from whose custody documents were seized may make copies or extracts in the presence of the officer at a reasonable time and place.
• Objection to the Central Government: a person legally entitled to the documents may object to the Authority's approval for continued retention by applying to the Central Government, which may pass such order as it thinks fit after hearing the applicant.
• CrPC applies: the provisions of the Code of Criminal Procedure, 1973 relating to searches and seizures apply, so far as may be, to searches and seizures under this section. These now correspond to the provisions of the Bharatiya Nagarik Suraksha Sanhita, 2023.
• Rules: the Central Government may make rules on the procedure for search and seizure and the custody of seized documents.

8. Investigation and Search Compared

• Nature: investigation compels production and testimony; search and seizure takes documents without the person's cooperation.
• Threshold: investigation needs a reasonable ground to believe in detriment or violation; search needs information leading to reason to believe in one of seven specific situations, mostly involving non-production, likely tampering or irregular claims and fees.
• Who acts: investigation is by any person named as Investigating Authority; search is only by an officer of the Authority of Gazetted rank.
• Sanctions: obstruction of investigation is punishable under Section 16(7); a search is enforced by police assistance and prohibitory orders.

9. Constitutional Dimensions

Search and seizure intrude on privacy, which the Supreme Court recognised as a fundamental right in Justice K.S. Puttaswamy v. Union of India (2017). Earlier, in M.P. Sharma v. Satish Chandra (1954), the Court held that a search and seizure under statutory authority does not, by itself, amount to testimonial compulsion under Article 20(3). Searches under Section 17 must therefore meet the tests of legality, legitimate aim and proportionality. The statutory grounds, the writing requirements and the retention limits help the power meet those tests, provided they are observed in each case.

Statements recorded on oath may raise questions under Article 20(3) (the privilege against self-incrimination). The privilege protects a person accused of an offence. A person examined in a regulatory investigation is not ordinarily an accused at that stage, so the privilege does not prevent the examination, though it may affect the later use of a compelled statement in a criminal trial.

10. Questions Arising

Must the Authority disclose the investigation report?

The Act does not require the report itself to be published. But if the Authority relies on the report to take action against a person, natural justice requires that the person be told of the material relied on, so that he can answer it. In T. Takano v. SEBI (2022), the Supreme Court held that a securities regulator must ordinarily disclose the material in an investigation report on which it relies, subject to limited exceptions for third-party or sensitive information. The same reasoning applies to PFRDA.

Can the Investigating Authority be an outside firm?

Yes. Section 16(1) allows the Authority to direct any person specified in the order to investigate. This permits forensic auditors or other experts to be appointed. The search power under Section 17, by contrast, can be given only to an officer of the Authority of Gazetted rank, because it involves entry into premises and the use of force.

11. Related Topics and Provisions

• Duties, powers and functions of the Authority (Section 14)
• Power to issue directions (Section 15)
• Cease and desist orders and management by Administrator (Sections 18 and 19)
• Offences and cognizance (Sections 32 and 35)
• Public servants and protection of action in good faith (Sections 47 and 48)