Introduction

The Prevention of Money Laundering Act (PMLA) was passed in 2002 with the aim to prevent and control money laundering activities and tackle the adverse impact of such activities on India’s financial system and the economy. The enactment of PMLA also ensured India’s alignment with international standards, such as by the Financial Action Task Force which leads global action and sets international standards to ensure national authorities can effectively tackle issues surrounding, inter alia, money laundering.

While the PMLA is a special enactment, the courts have, time and again, expanded the scope and powers available, including the power to arrest, to the Directorate of Enforcement (ED), ie, the investigating agency, under the PMLA, to read them broadly, in order to achieve the intent and purpose of the PMLA. The Supreme Court of India’s judgment in Vijay Madanlal Choudhary v Union of India, 2022 SCC OnLine SC 929 rejected most of the constitutional challenges to the scheme under the PMLA.

This article focuses on the Indian courts’ recent trends to be circumspect regarding the wide powers of the ED to arrest individuals while ignoring important statutory and constitutional protections available to an individual.

Scheme under the PMLA

Under Section 17(1) of the PMLA, with respect to the officer authorised, if he/she has information in his/her possession whereupon he/she has a reason to believe that any person has committed any act of money laundering, etc, then such person can be searched, and his/her properties/documents can be seized. Under Section 18(1) of the PMLA, the power to search such person is provided if there are reasons to believe he/she has been secretive about his/her person or anything under his/her possession, ownership or control, any record or proceeds of crime which may be useful for or relevant to any proceedings under the PMLA.

Section 19 of the PMLA deals with the powers of arrest. The provision provides the power of a concerned officer (Director, Deputy Director, Assistant Director or any other officer authorised in this respect by the central government) to arrest a person on the basis of the material in his/her possession, when such concerned officer has any reason to believe (such belief is to be recorded in writing) that the relevant person is guilty of an offence punishable under the PMLA. While a person is arrested in pursuance to Section 19 of the PMLA, the person so arrested is required to be informed about the grounds of such arrest “as soon as may be” (ie, as soon as possible). The person arrested is required to be taken to the Special Court or Judicial Magistrate or a Metropolitan Magistrate within 24 hours, as the case may be, regarding jurisdiction. These protections, such as informing a person of the grounds of his/her arrest, as well as producing him/her before a court within 24 hours of their arrest, are statutory protections that have flowed from the fundamental rights available to each and every individual under Article 22(1) and (2) of the Constitution of India.

The ED also has the power to summon an individual (either an accused or any person relevant to the investigation) to record their statement or to provide documents/records under Section 50 of the PMLA. The proceedings under Section 50 of the PMLA are judicial proceedings and failure to comply with the summons or giving wrongful/misleading information are punishable offences under Indian penal statutes.

In most investigations, it has been a standard operating procedure that the ED would conduct a search and seizure at the office and/or residential premises of the accused, followed by the recording of a statement of such accused and the information collected, and then the arrest of such accused under Section 19 of the PMLA.

ED’s modus operandi

A recent trend was being noticed in the investigations and proceedings conducted by the ED where constitutional protections provided to an individual, as reiterated in Section 19, were being overlooked. As stated above, under Section 19, as and when a person is arrested, the person so arrested is required to be informed about the grounds of such arrest “as soon as may be”. In some cases, it was found that the ED either did not have sufficient material to arrest a person and, therefore, no grounds of arrest were either made out or given to an arrested person when he/she was taken into custody under Section 19 of the PMLA. This practice was looked down on by the Supreme Court in the case of V. Senthil Balaji v State represented by the Deputy Director, 2023 SCC OnLine SC 934, wherein it was noted that it was an officer’s mandatory duty to record the reasons for an arrest. The said process has to be followed by way of information being served on the arrestee of the grounds of arrest. Any non-compliance of the mandate would vitiate the very arrest itself.

Similarly, the Supreme Court, in the case of Pankaj Bansal v Union of India, (2024) 7 SCC 576, after analysing the provisions contained in Section 19(1) of the PMLA, observed that in order to give true meaning and purpose to the constitutional and the statutory mandate of Section 19(1) of the PMLA of informing the arrested person of the grounds of arrest, it would be necessary that a copy of such written grounds of arrest is furnished to the arrested person as a matter of course and without exception.

The above judgments created an obligation on the ED to have sufficient grounds to arrest an individual prior to exercising their power under Section 19 of the PMLA, to record such grounds and to furnish them to an arrested individual at the time of taking him/her into custody. Such grounds of arrest would often become the first document which is challenged by the arrestee against an illegal or wrongful arrest and would often come under tough scrutiny.

Even though the Supreme Court of India has whittled down the mandatory obligation to provide grounds of arrest to an arrested individual at the time of arrest by interpreting “as soon as may be” in Section 19 to mean 24 hours from the arrest, the ED has always had a tough time coming through on this mandatory obligation. An easy workaround for this mandatory obligation was seen in a trend where the ED would conduct a search and seizure, take the person to its office under the guise of a summons under Section 50 of the PMLA, record their statement and make the same as the basis of the grounds of arrest, which are prepared in the ED’s office and, subsequently, a person is shown to have been arrested from the ED’s office.

An early occurrence of such modus operandi was noted during the arrest of Mr Gautam Thapar that came to be challenged in the Delhi High Court in Gautam Thapar v Directorate of Enforcement, 2021 SCC OnLine Del 4599. The ED conducted a search and seizure from 8.30 AM till 3.30 PM on 3 August 2021. Thereafter the arrestee was taken to the office of the ED for the recording of a statement. While the arrest memo indicated that he was arrested at 19.55 hours of 3 August 2021, the arrestee was put under restraint at 8.30 AM when his premises was raided. Subsequently the arrestee was produced before a court at 4:00 PM on 4 August 2021. It was argued that the very definition of arrest would imply that Mr Thapar was under arrest from 8:30 AM on 3 August 2021 and therefore the ED had failed to fulfil both statutory mandates under Section 19 of the PMLA; ie, to produce the arrestee before a court within 24 hours and to provide him/her the grounds of arrest immediately at the time of his/her arrest. The Delhi High Court, while distinguishing restraint during search and seizure and in an arrest, held that the scheme of the PMLA itself indicated that a search and seizure under Section 17 ran in a different sphere than Section 19 and, therefore, any restraint during search and seizure cannot be termed as “arrest” under Section 19.

What was overlooked by the Delhi High Court in the Gautam Thapar (supra) case was appreciated by the Punjab and Haryana High Court in the case of Pranav Gupta v Union of India, 2023 SCC OnLine P&H 3598. In the Pranav Gupta (supra) case, the ED conducted a search and seizure operation at the premises on 27 October 2023. After the search and seizure operation concluded, the ED officers, under the garb of summons under Section 50, PMLA, took the concerned individual to the ED’s office, and his arrest was drawn on 28 October 2023 when an arrest memo was provided to him.

It was argued by the arrestee’s counsel that the arrest would be counted from the time he was coerced into accompanying the officers of the ED in their car and taken to the office of the ED. The ED argued that for the purpose of compliance of Section 19 of the PMLA, the courts would see if a person was produced before a court within 24 hours of the arrest; ie, when the arrest memo was drawn up. The High Court, after hearing detailed arguments, concluded that the definition of arrest would imply robbing a person of his/her free agency. A summons under Section 50, if served on the arrestee, need not have been mandatorily complied with on the said date, as he could have asked for his statement to be recorded on another date or he could have volunteered to come to the ED’s office, in his own vehicle or with a relative. However, the mere fact that he was taken in the ED’s car, without having an alternative, would in effect be an arrest and the clock will start ticking from such moment, to have him produced within 24 hours before a court rather than from the time the ED shows a person’s arrest. The Pranav Gupta (supra) case has been appealed before the Supreme Court of India in Directorate of Enforcement v Pranav Gupta, SLP (Crl.) Nos 3214 – 3214/2024 where the issue of whether the arrest took place on 27 October 2023 or 28 October 2023 is being considered. This appeal is pending consideration by the Supreme Court of India.

The above judgment from the Punjab and Haryana High Court, for the first time, strictly interpreted the statutory mandate under Section 19 of the PMLA. Such strict interpretation was necessary to ensure constitutional safeguards are strictly enforced and available to all individuals. The law laid down in the Pranav Gupta (supra) case came to be tested in the matter of arrest made by the ED under the PMLA of two employees (including one Chinese national) and one external consultant of an Indian company engaged in the business of manufacturing and selling a Chinese brand of smart phone.

A search and seizure operation was undertaken by the ED at the premises of all three individuals which lasted for approximately ten hours. After conclusion of the search and seizure operation, the ED served each individual with a summons under Section 50 of the PMLA, to accompany them to their office on the same evening. Under the garb of such summons, the ED officers took all three individuals in the ED’s vehicle to their office. These individuals were made to stay the night in the ED’s office, were provided meals in the ED’s office and their statements were recorded during the morning of the next day. Subsequently, during the evening all three individuals were arrested by the ED in its office and the three individuals were also provided with the grounds of arrest.

The next day, in the afternoon, the three individuals were produced before the Special Court where the ED took the stand that as the individuals were arrested only during the previous evening, the ED complied with the mandatory provision of Section 19 of the PMLA; ie, to produce the arrestee/s before a court within a period of 24 hours from the time of arrest. This was challenged by the arrestees’ counsels who, relying upon the Pranav Gupta judgment, argued that the time of arrest would commence immediately after the arrestees were taken by the ED in their vehicle and, therefore, the ED has failed to comply with the mandatory provision of Section 19 of the PMLA. It was argued that the above modus operandi adopted by the ED is also violative of the rights provided to individuals under the Constitution of India. After arguments that panned over a couple of hearings, the Special Court, PMLA, noted the law laid down in the Pranav Gupta judgment and held the arrest to be illegal as the ED failed in its statutory mandate to produce the arrested individuals within 24 hours before a court of law. The said order of the Special Court has been challenged by the ED before the Delhi High Court and at present is pending adjudication before the Delhi High Court.

The above principles of law have come to the rescue of an individual’s constitutional right again in Dilbag Singh v Union of India, 2024 SCC OnLine P&H 2705. In this case, the Punjab and Haryana High Court noted that a search and seizure operation was undertaken at the arrestee’s premises from 4 to 8 January 2024. During this time, while the ED did not arrest the concerned individual, his movement was restricted to his premises and he was later shown as arrested. Relying on the law laid down in the Pranav Gupta (supra) case, the Punjab and Haryana High Court held that a restriction such as in this case for a period of four days was akin to restrictions under arrest and the ED cannot, under the guise of a search and seizure operation, keep someone in their custody, without complying with the mandatory requirements under Section 19 of the PMLA. The Dilbag Singh (supra) case was appealed before the Supreme Court of India in SLP (Crl.) 4044/2024, and it has been inclined to leave the question of law open.

The above said principles have not only been recognised and enforced in proceedings under the PMLA but have also been strictly interpreted for arrests made under Indian penal laws, such as in the case of Hem Prabhakar Shah v State of Maharashtra, 2024 SCC OnLine Bom 3006.

While in some cases the above mandatory statutory obligations have been read more liberally, the courts have started to put the ED in a tough spot for any blatantly offensive violation of such protections. In the case of Ram Kotumal Issrani v Enforcement Directorate, 2024 SCC OnLine Bom 1050, while the Bombay High Court did not hold the arrest to be illegal, the Court has looked down upon the modus operandi of the ED and directed it not to undertake recordation of statements under Section 50 of the PMLA at “ungodly” hours. Ram Kotumal Issrani (supra) has been appealed before the Supreme Court of India in SLP (Crl.) No 6181/2024, and the same is pending adjudication. The decision by the Bombay High Court has resulted in the ED issuing an internal circular not to record statements of a witness or an accused after office hours.

The importance of these precedents for constitutional safeguards

The Supreme Court of India has held that the provisions of Section 19 are mandatory and compliance with said provisions is a solemn function of the arresting authority which bears no exception and that the officer concerned is to strictly comply with the mandate of Section 19 in its letter and spirit.

It is a constitutional mandate that no person shall be deprived of his/her liberty, except in accordance with the procedure laid down under the law. In case the courts would not have laid down the above strict interpretation of mandatory statutory requirements under Section 19, PMLA, the ED could, hypothetically, keep persons under indefinite custody under the guise of a search and seizure followed by the recording of a statement under Section 50, PMLA, without having to produce a person before a magistrate in 24 hours. It is to be noted that the protection of being produced under 24 hours is an important constitutional right as it ensures that a person who has been arrested is not coerced by an investigating authority, is not met with any unlawful conduct and the judicial magistrate can apply his/her consideration as to whether the arrest is necessary for the purpose of investigation.

Therefore, the above laid down law has set reinstated important constitutional safeguards and is a welcome development in Indian jurisprudence under special statutes.