The Division Bench of A.S. Bopanna and Sanjay Kumar*, JJ., set aside the contested order in a criminal special leave to appeal challenging the Punjab and Haryana High Court decision that denied the accused person's petition to overturn their arrest by the Directorate of Enforcement ('ED'). The ruling stated that the ED is required to give the arrested person written notice of the reasons for their arrest.
In this case, the Anti-Corruption Bureau in Panchkula registered a First Information Report (FIR) against several individuals, including a Special Judge from the CBI and ED in Panchkula, as well as the Deputy Manager and Promoter of the M3M Group. The accused are being charged under Sections 7, 8, 11, and 13 of the Prevention of Corruption Act, 1988 (PCA), along with Section 120-B of the Penal Code, 1860 (IPC).
The FIR was filed after receiving information that the owner of IREO Group and other Arrests were carried out using the authority granted by Section 19(1) of the Prevention of Money Laundering Act, 2002 (‘PMLA’). Later on, the arrests were contested at the High Court, but the court's conclusion rejected the case. The defendants argued that their arrest under the terms of the PMLA was a deliberate misuse of power and an improper use of legal procedures by the ED, in addition to being clearly unlawful and unconstitutional. Furthermore, it was alleged that the Enforcement Directorate (ED) acted in contravention of the protective measures outlined in Section 19 of the Prevention of Money Laundering Act (PMLA).
An examination of the matters at hand reveals the following issues:
1) Was the arrest made under Section 19 of the PMLA valid and lawful? Did the orders of remand by the Vacation Judge/Additional Sessions Judge, Panchkula, meet the required standards?
In the case of Vijay Madanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929, the Court stated that the provisions of the Code of Criminal Procedure, 1973 (CrPC) are applicable to matters such as arrest, search and seizure, attachment, confiscation, investigation, prosecution, and other proceedings under the Prevention of Money Laundering Act (PMLA), as long as they do not conflict with the provisions of the PMLA. Furthermore, it was noted that the authority granted by Section 19 was given to senior officials and it included built-in measures that authorised officers must follow.
These measures include recording the reasons for suspecting the person's involvement in money laundering, documenting these reasons in writing, and informing the person of the grounds for their arrest. The Court observed that Section 19 of the PMLA does not conflict with the obligation to produce evidence as stated in Section 167 of the CrPC. In the case of V. Senthil Balaji v. State, 2023 SCC OnLine SC 934, the Court further mentioned that the authorised official has an obligatory responsibility to document the rationale behind their belief that an individual is guilty and requires arrest. In the case of V. Senthil Balaji (supra), it was noted that the Magistrate has the responsibility of striking a balance because the investigation must be completed within 24 hours as a rule.
Therefore, it is the duty of the investigating agency to provide sufficient evidence to the Magistrate to justify the need for keeping the accused in custody. The Court restated that it is imperative to adhere to Section 167 CrPC when an arrest is made under Section 19 of the PMLA. During the examination of the legality of the remand orders, the Court made reference to the case of Madhu Limaye, In re, (1969) 1 SCC 292.
In this case, it was noted that it is essential for the Magistrate, at the stage of remand, to carefully consider all relevant factors before directing detention in jail custody. If it is found that the arrest violates Article 22(1) of the Constitution of India, the remand order will not rectify the constitutional flaws associated with such arrest. The Court determined that the Additional Sessions Judge, Panchkula failed to fulfil his responsibilities and neglected to document the findings to establish whether the ED had valid reasons to believe that the accused individuals were guilty of an offence under the PMLA Act, and whether there was proper adherence to Section 19 of the Act.
The Court criticised the Enforcement Directorate's operational approach, stating that the manner in which arrests were conducted reflected negatively on the agency. The Court stated that the Enforcement Directorate (ED), as a leading investigative body responsible for combating money laundering offences, is required to exhibit transparency in all its actions and adhere to impeccable norms of fair play.
In addition, the Court stated that the Enforcement Directorate (ED), which is endowed with extensive powers under the Prevention of Money Laundering Act (PMLA), should not act out of spite and should be perceived as functioning with the utmost integrity and impartiality. However, in this particular situation, the ED did not fulfil its duties and exercise its authority in accordance with these criteria.
The Court observed that the ED's actions of recording a second Enforcement Case Information Report (ECIR) right after the accused individuals obtained anticipatory bail for the first ECIR, and subsequently summoning and arresting them on different grounds within a brief period of around 24 hours, demonstrated a clear lack of good faith and an abuse of power, authority, and legal procedures. The Court further observed that the second ECIR was documented four days after bail was granted, making it unlikely that the ED was uninformed of the first FIR dated 17-04-2023 at that time. The Court further noted that the ED's retaliatory action, which involved recording the second ECIR and taking immediate steps to arrest the accused individuals within a single day, was self-explanatory.
The Court clarified that according to Section 19(1) of the PMLA, it is essential to have a valid reason to believe in order to arrest someone. However, in this case, it was uncertain when the ED's Investigating Officer had the opportunity to thoroughly investigate the matter and form a definite opinion regarding the accused individuals' participation in an offence under the PMLA. This uncertainty raises questions about the necessity of arresting them within 24 hours of the interim protection provided by the Delhi High Court.
The Court also observed that the accused individuals' refusal to answer the ED's question would not be considered enough for the Investigating Officer to conclude that they should be arrested under Section 19. This is because the provision necessitates the establishment of reasons to believe that a person is guilty of an offence under the PMLA. The Court declared that simply refusing to cooperate as a witness in answer to the summons issued under Section 50 of the PMLA is not sufficient grounds for arresting the individual under Section 19.
2) How should the arrested individual be notified about the grounds for their arrest?
The Court observed that the Enforcement Directorate (ED) lacks a regular and standardised procedure for serving information regarding the 'grounds' of arrest. The Court ruled that according to Article 22(1) of the Constitution, it is a basic entitlement for an apprehended individual to be notified before being held in custody. The Court further emphasised that the method of communicating the reasons for an arrest must be inherently significant in order to effectively fulfil the intended objective of this fundamental entitlement. The Court observed that Section 45 of the Prevention of Money Laundering Act (PMLA) allows individuals arrested under Section 19 to apply for bail if two conditions are met:
a. The Court must be convinced, after giving the public prosecutor a chance to oppose the bail application, that there are valid reasons to believe that the arrested person is innocent of the crime.
b. The Court must also be convinced that the person is unlikely to commit any further offences while on bail.
The Court clarified that in order to fulfil these criteria, it is crucial for the detained individual to have knowledge of the reasons for their arrest. The arrested individual can only challenge their arrest if they possess information about the circumstances that gave rise to a "reason to believe" that they are guilty of a crime.
The Court clarified that Section 19 of the PMLA clearly states that the authorised officer must provide written reasons for believing that the person to be arrested is guilty of an offence punishable under the PMLA. According to Section 19(2), the authorised officer must send a copy of the arrest order, along with the relevant material, to the Adjudicating Authority in a sealed envelope. Although not all of the material forwarded to the Adjudicating Authority needs to be given to the arrested person, there is a constitutional and statutory right to be informed of the grounds for arrest.
These grounds must be recorded in writing by the authorised officer, as required by Section 19(1) of the PMLA. The Court further stated that the constitutional and statutory protection would lose its significance if the authorities were allowed to simply read or allow the reading of the grounds of arrest, regardless of their extent and specificity, and assert compliance with the constitutional requirement under Article 22(1) and the statutory obligation under Section 19(1) of the PMLA.
In addition, the Court examined Rule 6 of the Prevention of Money Laundering (The Forms and the Manner of Forwarding a Copy of Order of Arrest of a Person along with the Material to the Adjudicating Authority and its Period of Retention) Rules, 2005, which is titled 'Forms of records'. This rule states that the arresting officer, when exercising powers under Section 19(1) of the PMLA, must sign the Arrest Order using Form III as provided in these Rules. The Court ruled that it is necessary to provide the arrested individual with a copy of the written grounds of arrest without any acceptable justification for withholding it.
The Court recommended it as a course of action for two main reasons: If the grounds for arrest are either orally communicated or read by the arrested person without any additional information, and this is disputed in a particular case, it may come down to a conflict between the arrested person's account and the authorised officer's account regarding whether or not there was proper compliance. The conveyance of information has the purpose of informing the arrested individual about the reason for their detention. It also allows them to obtain legal advice and then submit their case in court under Section 45, in order to request release on bail, if they wish to do so. Consequently, the Court determined that it is imperative to provide the arrested individual with a copy of the written reasons for their detention without any exceptions, in order to fully uphold the constitutional and legislative requirement of Section 19(1) of the PMLA.
Judgement
The Court granted the appeals and overturned the challenged ruling of the High Court and the remand orders of the Additional Sessions Judge.
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