OVERVIEW:
Through a series of recent judgements, the Hon’ble Supreme Court has outlined limits to the Directorate of Enforcement’s (“ED”) powers under the Prevention of Money Laundering Act, 2002 (“PMLA”). Resultantly, issues that were rather ambiguous are now a lot clearer.
Through its judgements in Pankaj Bansal v Union of India (“Pankaj Bansal”)[1] and Ram Kishor Arora v. Directorate of Enforcement (“Ram Kishor Arora”) [2], the Hon’ble Supreme Court has clarified that the ED is obligated to provide an arrestee with written reasons for arrest within 24 hours of the arrest. We have written on this in greater deal here.
In fact, by its judgement dated May 15, 2024 in Prabir Purkayastha v State (NCT of Delhi) [3], the Hon’ble Supreme Court has extended the ratio from Pankaj Bansal to an arrest made under the Unlawful Activities (Prevention) Act, 1967 as well. By this judgment in Prabir Purkayastha, the arrest of the petitioner sans grounds for arrest being provided to him, was held to be unlawful by the Hon’ble Supreme Court.
In the present article, we consider further developments under the PMLA, which include:
- Analysing the contours of ED’s powers to arrest under Section 19, particularly the final stage after which ED cannot arrest an accused;
- Whether an accused, who has been summoned in a complaint under the PMLA, but had not yet been arrested, will have to apply for bail;
- If warrants are issued for such accused, is his recourse to apply for bail, or to seek cancellation of warrants?
- To what extent will the ‘twin test’ for grant of bail under Section 45 PMLA apply to such an accused (i.e. chance for public prosecutor to oppose bail and reasons for court to believe that accused has not committed the offence and will not commit any offence while on bail):
- To what extent will the provisions of Code of Criminal Procedure, 1973 (“CrPC”) apply to trials under PMLA.
This is done in light of the Hon’ble Supreme Court’s May 16, 2024, judgement in Tarsem Lal v Directorate of Enforcement[4] (“Tarsem Lal”).
THE TARSEM LAL JUDGEMENT
Background
The special court took cognizance of a complaint under Section 44(1)(b) of the PMLA and issued summons to the petitioner as an accused. Notably, the Petitioner had not been arrested at any point prior thereto in respect of the alleged offence. The Petitioner did not appear before the special court, and accordingly, the special court issued warrants. In response, the petitioner moved an application for grant of anticipatory bail, which was rejected by the special court, and the Hon’ble High Court of Punjab and Haryana, as well.
Hence, the appeal before the Hon’ble Supreme Court.
Contentions on behalf of the parties
The following key contentions were advanced on behalf of the petitioner:
- ED cannot arrest a person under Section 19 PMLA, after the special court has taken cognizance of the complaint under Section 44(1) of the PMLA.
- If a person was not arrested by the ED during investigation, and appears before the special court pursuant to summons, it is not necessary to arrest him.
- If a person was not arrested by the ED during investigation, and appears before the special court pursuant to summons, it is not necessary to apply for bail. The Special Court can always seek a bond securing appearance of the accused under Section 88 of the CrPC. If the ED wants remand of such a person, after the court has taken cognizance, ED must apply under Section 309(2) of the CrPC.
In response, the ED sought to contend inter alia that:
- Once an accused appears before the special court, he is deemed to be in its custody. Hence, an accused would have to seek bail under Section 439 CrPC.
- When an accused applies for bail under Section 439 CrPC, the twin test under Section 45 must apply.
- After the court takes cognizance, ED may need to undertake further investigation and file supplementary complaint, for which it can exercise its powers of arrest under Section 19 PMLA.
- Application by accused for furnishing bonds under Section 88 CrPC is an application for grant of bail. Hence, Section 45(1) PMLA will apply (i.e. twin test).
Analysis by the Court
Having considered the submissions, the court analysed the interplay between the PMLA and CrPC as under:
- The court noted Sections 65 and 71 of the PMLA, which made CrPC applicable to the PMLA and gave overriding preference to the PMLA, respectively.
- The court noted Section 46 of the PMLA, which states that the provisions of the CrPC shall apply to proceedings before the Special Court, and that the Special Court shall be considered akin to a court of session for the purposes of the CrPC provisions.
- Thus, a complaint under Section 44(1) of the PMLA would be governed by Sections 200 to 204 of the CrPC. If the special court finds prima facie that an offence under PMLA is committed, it can issue process.
- Since offence under Section 4 of the PMLA (money laundering) is punishable for more than three years, it shall be treated as a warrant case, in view of Section 2(x) CrPC.
- While taking cognizance of the complaint under Section 44(1) of the PMLA, if the special court finds that the accused has not been arrested till the filing of the complaint, it should ordinarily issue a summons (and not a warrant).
- Court referred to Section 205(1) of the CrPC (court’s power to exempt personal appearance of accused while issuing summons) to hold that if an accused is considered to be in ‘custody’ while appearing, pursuant to summons, there would no reason for the court to have such power to exempt personal appearance.
- Hence, the court held that it was incorrect to contend that an accused appearing pursuant to a summons is ‘in custody’ of the court.
- Section 88 of the CrPC, titled “Power to take bond for appearance”,is a discretionary and enabling provision for the court to take a bond, merely to secure presence of a ‘person’, not just an accused, during trial.
- A court accepting bonds under Section 88 does not amount to grant of bail. It is merely an undertaking by an accused to ensure that he/ she appears on the next date/ dates fixed.
- If the accused was not arrested prior to filing of the complaint, he cannot be deemed to be in custody and hence there is no question of seeking bail.
- If the accused does not appear pursuant to a bond given under Section 88 CrPC or appears on one date and does not appear on another, the court is empowered under Section 89 CrPC to issue an arrest warrant for arrest and production of the accused before the court.
- Similarly, even if no bond has been provided under Section 88 of the CrPC, the court is empowered under Section 70 of the CrPC to issue an arrest warrant.
- In both such situations,
- The warrants are issued to compel production of accused before the court.
- The accused can move an application for cancellation of warrants before the court and does not need to seek bail.
- Once the special court takes cognizance and the accused has not been arrested, ED cannot take recourse to Section 19 of the PMLA to arrest the person. If it wants remand, ED must apply before the special court, which may grant such remand after hearing the accused and recording brief reasons.
Key Findings
The court accordingly recorded the following conclusions:
- If an accused was not arrested till filing of the complaint and cognizance is taken by special court, ED and its officers are powerless to arrest the said accused under Section 19 of the PMLA;
- If in such a situation, ED wants custody, it shall seek remand under Section 309 of the CrPC. The special court may or may not grant such remand, only after hearing the accused and recording brief reasons.
- Once cognizance of complaint under Section 44(1) of the PMLA is taken by the special court, then the procedure under Sections 200-205 of CrPC shall be applicable.
- A bond under Section 88 of the CrPC is only an undertaking by an accused, who is not in custody, to appear on the next hearing date. Hence, an order accepting such a bond does not amount to an order granting bail.
- If an accused does not appear pursuant to a summons or breaches a bond (under Section 88), the court can issue warrants under Section 89/ 70 to compel production of accused. An accused can seek cancellation of such warrants. In such a situation, the court will be considering an application for cancellation of warrants, and not an application for bail, hence Section 45(1) of PMLA, i.e. twin test, will not be applicable.
ANALYSIS
The judgement in Tarsem Lal lends further clarity to the applicability of CrPC, to a trial of an offence under PMLA. Once cognizance is taken, Section 200-205 of the CrPC come into the picture. The ED then cannot exercise its power of arrest, if until then, an accused has not been arrested. Should ED require custody, it will have to seek remand from the special court under Section 309(2) of the CrPC. As clarified in Tarsem Lal, the question of remand will be decided only after hearing the accused, thus protecting the interests and liberty of the accused by providing the accused with a fair chance to contest such a remand request.
Equally important are the clarifications on appearance of an accused (who has not been arrested prior to filing of the complaint), pursuant to summons by the special court. The court has dispelled even the slightest notion that attendance pursuant to a summons would mean that the accused was in the ‘custody’ of the court. The clarifications on warrants issued by courts, and the recourse of the accused to seek cancellation of warrants, and not bail is important as well, since this keeps away the application of the rigorous twin test under Section 45(1) PMLA.
Most significantly, the court sets out that the inherent protections that exist under the CrPC will also be applicable to a trial under PMLA. It would be inapposite to say that the judgement in Tarsem Lal curtails the powers of the ED. A more fitting way of looking at it is that the judgment clears the air and sets out the standards and procedural rigours that must always apply, even in matters of the PMLA.
For further information, please contact:
Kapil Arora, Partner, Cyril Amarchand Mangaldas
kapil.arora@cyrilshroff.com
[1] Criminal Appeal Nos. 3051-3052 of 2023
[2] 2023 SCC OnLine SC 1682
[3] Diary No. 42896 of 2023
[4] Criminal Appeal NO. 2608 of 2024
