The Prevention of Money Laundering Act, 2002 (“PMLA”), places proceeds of crime at the core of the offence of money laundering. Before delving into this article, it is imperative to understand the definition of proceeds of crime, which Section 2 (1) (u) of the PMLA[1] defines as “any property derived or obtained by any person, as a result of criminal activity relating to a scheduled offence”.
This article primarily explores the interpretation of Section 19 of the PMLA,[2] which grants “powers to arrest” and outlines the procedures that officers of the Directorate of Enforcement (“ED”) must follow while executing the arrest of an individual accused of money laundering under the PMLA. It also highlights the practices the ED officers had followed while making arrests before the Hon’ble Supreme Court’s ruling in Pankaj Bansal v. Union of India & Ors.[3] (“Pankaj Bansal case”) and examines the current framework the ED follows pertaining to arrest under the PMLA.
A plain reading of Section 19 of PMLA establishes certain processes the ED must follow while executing an arrest: (i) no officer other than the Director, Deputy Director, Assistant Director, or any other authorised officer can conduct the arrest of a person accused of the offence of money laundering; (ii) the officer must possess material that provides enough reasons to believe (such reasons to be recorded in writing) that the person is guilty of the offence of money laundering; (iii) the ED officer must, as soon as possible, inform the arrested person of the grounds of arrest; (iv) following the arrest, the ED must forward a copy of the order with the material in possession in a sealed envelope to the adjudicating authority; and (v) every arrested person must be produced before the Special Court or the Jurisdictional Magistrate within 24 hours of the arrest.
Evolution of Section 19 of PMLA: Precedents and Interpretation Before the Pankaj Bansal Case
Before the judgment of the Hon’ble Supreme Court in the Pankaj Bansal case, the ED followed the practice of orally communicating the grounds of arrest to the accused at the time of arrest, which compromised the transparency.
Considering such a practice being followed by ED, the constitutional validity of various provisions of the PMLA, includingSection 19, was challenged before the Hon’ble Supreme Court in Vijay Madanlal Choudhary & Ors. v. Union of India & Ors.[4] (“Vijay Madanlal case”). The main challenge regarding Section 19 was that the powers granted to the ED officers were extremely wide and had no nexus with the objectives of the PMLA. Based solely on material in their possession, the ED officers could arrive at the conclusion that a person was “guilty of an offence of money laundering”, without giving the accused a chance to provide any clarifications. It was argued that the power to hold a person guilty should only be vested upon the Courts through due judicial process and that a person could be declared guilty of an offence only upon the conclusion of a trial. However, the PMLA had empowered the ED officers to decide a person’s guilt based merely on the material in possession and allowed them to arrest the individual without even communicating the grounds of arrest in writing.
A conjoint reading of Section 19(1) of the PMLA along with Article 22(1) of the Constitution of India[5] requires that the accused be informed of the grounds of arrest. However, ambiguity has remained regarding the manner and mode of communication of these grounds to arrested persons.
Interpretation of Section 19 Prior to the Pankaj Bansal Case
The Hon’ble High Court of Delhi in Moin Akhtar Qureshi v. Union of India[6] and the Hon’ble High Court of Judicature at Bombay in Chhagan Chandrakant Bhujbal v. Union of India[7] observed that Section 19(1) of the PMLA uses the words “informed of the grounds of arrest” and does not use “communicate the grounds of such arrest”. Thus, oral communication of the grounds of arrest by the ED is not only a substantial but proper compliance with the provision. Furthermore, the use of words “as soon as may be” makes it clear that the grounds of arrest may not necessarily be provided at the time of arrest itself but as soon as may be.
The Hon’ble Supreme Court in V. Senthil Balaji v. State & Ors.[8] (V. Senthil Balaji case) held that after the arrest of an accused, information regarding the grounds of arrest must be served to the person, and any non-compliance with the requirement would vitiate the arrest itself. However, the meaning of the term served was not clarified. This has caused confusion in understanding the meaning of the term served, leading to ambiguity regarding the time and the manner of serving information on the grounds of arrest to the accused.
Law Laid Down in the Pankaj Bansal Case
The Hon’ble Supreme Court in the Pankaj Bansal case held that per Article 22(1) of the Constitution, no arrestee can be detained in custody without being informed of the grounds of arrest. The Court ruled that the arrestee should be promptly appraised of the grounds of arrest and clarified that providing the grounds for arrest in a written format to the accused is a sine qua non and that the ED officers were henceforth obligated to provide the grounds of arrest in writing. It also held that written communication would serve a dual purpose: first, to inform arrested individuals about the grounds for their arrest, and second, to enable them to access legal counsel to seek release on bail.
Evolution of Law Post the Pankaj Bansal case
The question of whether the law laid down in the Pankaj Bansal case will apply prospectively or retrospectively came up for consideration in Ram Krishna Arora v. Directorate of Enforcement (“Ram Krishna Arora case”).[9] In this case, the Court held that use of the term “henceforth” in the Pankaj Bansal case implied that the judgment will not have a retrospective consideration. In the Ram Krishna Arora case, the Court observed that as the expression “as soon as may be” in Section 19 of the PMLA had not been considered or explained in the Vijay Madanlal, V. Senthil Balaji, or Pankaj Bansal cases, it could be interpreted to mean “as early as possible without avoidable delay”, i.e., within 24 hours of the arrest.
Legal Position Clarified in the Tarsem Lal Case on ED’s Powers of Arrest
The Hon’ble Supreme Court in Tarsem Lal v. Enforcement Directorate (“Tarsem Lal case”),[10] considered the following major questions, including the powers of arrest of the ED officers and held as follows:
- Whether the officers of ED can carry out arrest under Section 19, particularly at the stage post taking cognizance by the Special Court: The Court clarified that if the ED wants custody of any accused person after the filing of the complaint and cognizance being taken, it has to move an application under Section 309 of Code of Criminal Procedure (“CrPC”) before the Special Court.
- Whether an accused who has not been arrested throughout the period of investigation will need to apply for bail post being summoned by the Special Court on taking cognizance: The Court held that while taking cognizance under Section 44(1) of the PMLA, the Special Court must follow the procedures laid down under CrPC for the post-cognizance stage, i.e., the Special Court must proceed to issue summons under Section 204 of CrPC on prima facie satisfaction that an offence under Section 4 of the PMLA has been committed. Upon the receipt of the summons, the accused person will be required to appear before the Court and file for a bond under Section 88 of CrPC, undertaking to secure presence for the trial.
- If the accused fails to appear before the Special Court in furtherance of the summons/warrants being issued, can the accused apply for cancellation of warrant or has to necessarily apply for bail? Whether the accused has to go through the rigours of the twin conditions of bail as stipulated under Section 45 of PMLA: The Court held that if the accused failed to appear post summons being issued or breached the bond under Section 88, the Special Court must then proceed to issue a warrant to compel the presence of the accused. The rigours of the twin conditions under Section 45 of the PMLA shall not be made applicable to the accused person at this stage.
Conclusion
The judgment in the Pankaj Bansal case stands as a significant milestone in safeguarding the constitutional rights of individuals arrested by emphasising the need for informing the accused about the grounds of arrest in writing within 24 hours. By mandating this written communication, the Court has not only reinforced the fundamental right to liberty but also sought to curb the arbitrary use of arrest powers.
The ruling highlights the importance of clear and timely communication of arrest grounds, so that the enforcement agencies act transparently and fairly. The ratio being laid in the Pankaj Bansal case has been followed by various High Courts across India, which has ensured transparency in arrest procedures under the PMLA.
Through the judgment in the Tarsem Lal case, the Apex Court has significantly recalibrated the scope and application of arrest powers under the PMLA by infusing a degree of accountability and constitutional balances in the functioning of the ED.
The Court has clarified that protections inherent in the CrPC would also extend to trials under the PMLA. Rather than curtailing the powers of the ED, the judgment in the Tarsem Lal case provides much-needed clarity and sets definitive standards and procedural rigor that must be upheld in all cases, including those under the PMLA. While it remains to be seen whether this decision is a step in the right direction, it definitely paves the way forward by reinforcing the balance between the ED’s powers and individual rights.
For further information, please contact:
Prasanna Kumar, Cyril Amarchand Mangaldas
prasanna.kumar@cyrilshroff.com
[1] Section 2(1)(u) of PMLA
[2] Section 19 of PMLA
[3] (2024) 7 SCC 576
[4] 2023(12) SCC 1
[5]Article 22, Constitution of India, 1950
[6] 2017 SCC OnLine Del 12108
[7] 2016 SCC OnLine Bom 9938
[8] (2024) 3 SCC 51
[9] 2023 SCC OnLine SC 1682
[10] (2024) 7 SCC 61
