In a significant judgment titled Pankaj Bansal versus Union of India & Ors., the Supreme Court of India while expounding power of arrest under Section 19 of Prevention of Money Laundering Act, 2002 (‘PMLA’) has held that an arrest made by Directorate of Enforcement (‘ED’) without furnishing the grounds of arrest to the accused in writing at the time of arrest is illegal and mere non-cooperation of a witness in response to the summons would not be enough to render him/her liable to be arrested. It was further directed that the court while remanding any person arrested by the ED, has a foremost duty to verify and ensure that the arrest is valid and lawful failing which the order of remand would fail on that ground itself.
In the case, between the years 2018 and 2020, several First Information Reports (‘FIRs’) were registered against various IREO group of companies on the basis of complaints submitted by several buyers who failed to get plots in projects developed by said companies. Upon investigation in Enforcement Case Information Report (‘ECIR’),it was revealed that huge amount of money was diverted to M3M group of companies by IREO group companies after layering of funds routed by IREO group to M3M group through shell companies owned/controlled/managed by M3M group and its controller only. Basant Bansal and Roop Kumar Bansal were founder of the company M/sM3M India Limited and Pankaj Bansal was a Director in M3M group of companies.
Later, on 17.04.2023, another FIR was registered by the Anti-Corruption Bureau, Panchkula, Haryana against the accused persons and a Special Judge, CBI and ED, Panchkula for the offences under Sections 7, 8, 11 and 13 of the Prevention of Corruption Act, 1988 (‘PCA’) read with Section 120-B of the Penal Code, 1860 (‘IPC’) on receiving information that the Special Judge by abusing his official position, had got undue favours from the owners of M3M and IREO group of companies by getting appointed his nephew Mr. Ajay Parmar as a Legal Advisor in M3M company. Arrests were made by ED exercising the power under Section 19(1) of PMLA. Subsequently, the remand orders as well as the underlying arrest orders and arrest memos were challenged by Petitioners by filing writ petitions before the Punjab and Haryana High Court, which was dismissed by the High Court, which was then challenged by filing criminal appeals before the Supreme Court.
Issues Before Supreme Court
The primary arguments raised by accused persons before Supreme Court was that their arrest under the provisions of the PMLA was a wanton abuse of power/authority and an abuse of process by the ED, apart from being blatantly illegal and unconstitutional. It was also asserted that the ED acted in violation of the safeguards provided in Section 19 of the PMLA.
Decision by Supreme Court
The Supreme Court observed that without going in the merits of allegations of money laundering, the only issue for consideration was whether the arrest of the appellants under Section 19 of PMLA was valid and lawful and whether the impugned orders of remand passed by the Judge, Panchkula were in accordance with law.
The Court observed that provisions of the Code of Criminal Procedure, 1973 (‘CrPC’) shall be applicable in respect of arrest, search and seizure, attachment, confiscation, investigation, prosecution and all other proceedings under the PMLA, insofar as they are not inconsistent with the provisions of PMLA. It was also observed that the power under Section 19 of PMLA was vested in high-ranking officials and it provided inbuilt safeguards to be adhered to by the authorized officers, such as, of recording reasons for the belief regarding involvement of the person in the offence of money laundering and, further, such reasons have to be recorded in writing and while effecting arrest, the grounds of arrest are to be informed to that person. The Court noted that it is the bounden duty of the authorized officer to record the reasons for believing that a person is guilty and needs to be arrested.
Castigating ED’s style of functioning in the instant case, the Supreme Court observed that the hasty manner in which arrests were made by ED spoke poorly of it. Being a premier investigating agency, charged with the onerous responsibility of curbing the debilitating economic offence of money laundering in our country, every action of the ED in the course of such exercise is expected to be transparent, above board and conforming to
pristine standards of fair play in action. The ED, mantled with far-reaching powers under the stringent PMLA is not expected to be vindictive in its conduct and must be seen to be acting with utmost probity and with the highest degree of dispassion and fairness. The Court observed that the way in which second ECIR was recorded four days after the grant of anticipatory bail in first ECIR and the ED’s retaliatory move, of acting upon it, all within the span of a day, to arrest the accused persons, spoke for itself. In the case on hand, the facts demonstrate that the ED failed to discharge its functions and exercise its powers as per these parameters.
The Court observed that the failure of the appellants to respond to the questions put to them by the ED would not be sufficient in itself for the Investigating Officer to opine that they were liable to be arrested under Section 19, as that provision specifically requires him to find reason to believe that they were guilty of an offence under PMLA. Mere non-cooperation of a witness in response to the summons issued under Section 50 of PMLA would not be enough to render him/her liable to be arrested under Section 19. Merely because an accused did not confess, it cannot be said that he was not cooperating with the investigation. Similarly, the absence of either or both of the appellants during the search operations, when their presence was not insisted upon, cannot be held against them.
On the issue of non-compliance of grounds of arrest informed to the arrested person, the Court observed that the more important issue was as to how the ED is required to ‘inform’ the arrested person of the grounds for his/her arrest. The Court held that surprisingly, no consistent and uniform practice seems to be followed by the ED in this regard, as written copies of the grounds of arrest are furnished to arrested persons in certain parts of the country but in other areas, that practice is not followed and the grounds of arrest are either read out to them or allowed to be read by them.
The Court observed that Article 22(1) of the Constitution provides, inter alia, that no person who is arrested shall be detained in custody without being informed, as soon as may be, of the grounds for such arrest. This being the fundamental right guaranteed to the arrested person, the mode of conveying information of the grounds of arrest must necessarily be meaningful so as to serve the intended purpose. It may be noted that Section 45 of PMLA enables the person arrested under Section 19 thereof to seek release on bail but it postulates that unless the twin conditions prescribed thereunder are satisfied, such a person would not be entitled to grant of bail. The Twin conditions set out in the provision are that:
- Firstly, the Court must be satisfied, after giving an opportunity to the public prosecutor to oppose the application for release, that there are reasonable grounds to believe that the arrested person is not guilty of the offence and,
- Secondly, that he is not likely to commit any offence while on
To meet this requirement, it would be essential for the arrested person to be aware of the grounds on which the authorized officer arrested him/her under Section 19 and the basis for the officer’s ‘reason to believe’ that he/she is guilty of an offence punishable under PMLA. It is only if the arrested person has knowledge of these facts that he/she would be in a position to plead and prove before the Special Court that there are grounds to believe that he/she is not guilty of such offence, so as to avail the relief of bail. Therefore, communication of the grounds of arrest, as mandated by Article 22(1) of the Constitution and Section 19 of the PMLA, is meant to serve this higher purpose and must be given due importance.
Further, the Court referred to 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, titled ‘Forms of records’, which provides that the arresting officer while exercising powers under Section 19(1) of the PMLA shall sign the Arrest Order in Form III appended to these Rules.
The Court said that there are two primary reasons as to why a copy of written grounds of arrest should be mandatorily furnished to the arrested person as a matter of course:
- Firstly, in the event such grounds of arrest are orally read out to the arrested person or read by such person with nothing further and this fact is disputed, it may boil down to the word of the arrested person against the word of the authorized officer as to whether or not there is due and proper compliance in this regard.
- Secondly, conveyance of information is not only to apprise the arrested person of why he/she is being arrested but also to enable such person to seek legal counsel and, thereafter, present a case before the Court under Section 45 to seek release on bail, if he/she so chooses.
Therefore, the Court concluded that it would be necessary that that a copy of written grounds of arrest is furnished to the arrested person as a matter of course and without exception, to give true meaning and purpose to the constitutional and the statutory mandate of Section 19(1) of the PMLA. Though before the Supreme Court,
the ED claimed that accused were provided with the grounds of arrest which were read out and explained to the accused in Hindi. However, the Court found it inconclusive as the accused did not sign the document.
The Supreme Court thus allowed the appeals and set aside the impugned order of the High Court and remand orders of the Additional Sessions Judge, Panchkula, Haryana.
Anhad Law views
The judgment is significant as it provides necessary safeguards and checks and balances of the exercise of wide powers by ED officials under the PMLA especially when PMLA is considered a stringent law which does not
follow conventional criminal law jurisprudence. It is a basic principle of criminal law that an accused is presumed to be innocent until proven guilty, however, PMLA provides for reverse burden of proof meaning that for the offence of money laundering, a person is guilty until proven innocent. Further, there is absolute lack of a mens rea requirement under PMLA. Under PMLA, there is no need to formally register ECIR and there is not requirement in law to furnish copy of ECIR to accused. ED officers not being considered police officers and statement/confession recorded by them cannot be hit by Articles 20(3) and 21 of Constitution. However, despite
the ED’s officials not being the “police”, they are still entitled to take an accused into “police custody” in order to undertake even more interrogation. The provisions of CrPC and Evidence Act do not apply to the inquiry carried out by the ED officers as PMLA is a sui generis legislation, dealing with the prevention, detection, attachment, confiscation, vesting and making it obligatory for persons to comply with certain essential formalities and make them accountable for failure thereof.
Upon analysis of the judgment by Supreme Court, it can be inferred that the Supreme Court has enumerated significant principles under section 19 of PMLA, non-compliance of which can now be invoked as the grounds to be released on bail or quashing of proceedings:
- The first principal can be that a refusal to confess during interrogation or mere non-cooperation of a witness in response to the summons issued under Section 50 of PMLA would not be enough to consider that accused is not cooperating with the investigation, thereby render him/her liable to be arrested under Section 19. In any event, it is not open to the ED to expect an admission of guilt from the person summoned for interrogation and assert that anything short of such admission would be an ‘evasive reply’.
- The second principal can be that the ED cannot arrest with mala fides as in the case, the manner in which the ED recorded the second ECIR immediately after the appellants secured anticipatory bail in relation to the first ECIR, and then went about summoning them on one pretext and arresting them on another, within a short span of 24 hours or so, manifests malafide and vengeance and complete and utter lack of bonafides.
- The third principal can be that the Accused has a right to receive the grounds of their arrest in a written format. The Supreme Court considered the effect of section 45 of PMLA to conclude that the rights of the arrestee to obtain bail under the stringent conditions would not be possible unless the arrestee has correct and complete information with respect to his grounds of With regard to the sensitive material which may be contained in the grounds of arrest, the Supreme Court observed that such information/sensitive portions could always be redacted, so as to safeguard the sanctity of the investigation.
It is significant that the issue whether the aforesaid judgment by Supreme Court would act prospectively or retrospectively, has been recently examined by Punjab & Haryana High Court in the judgment of Roop Bansal Vs. Union of India, wherein vide judgment dated 31.10.2023 the Division Bench of Court held the Supreme Court judgment would act retrospectively by observing that “no doubt, the Hon’ble Supreme Court held that the grounds of arrest would “henceforth” be furnished in writing to the accused but at the same time, it declared the arrest and the consequential remand of Pankaj Bansal and Basant Bansal to be illegal. Had the intention been to make the condition only prospective, the Hon’ble Apex Court would not have declared the arrest of Pankaj Bansal and Basant Bansal to be illegal.”
The basic concept is fair play in action administrative, judicial or quasi-judicial. The Courts in India have held that personal liberty, is by every reckoning, the greatest of human freedoms. This constitutional right of life and personal liberty is placed on such a high pedestal by this Court that it has always insisted that whenever there is any deprivation of life or personal liberty, the authority responsible for such deprivation must satisfy the court that it has acted in accordance with the law.
The judgment by Supreme Court is therefore noteworthy as the interpretation by the Supreme Court is expected to restrain arbitrary exercise of arrest powers and facilitate the robust safeguarding of the fundamental right to liberty of an accused.