Introduction
In the landmark case of Arvind Kejriwal v. ED[i], the Supreme Court (‘SC’) has reaffirmed the foundational principles of fairness, transparency, and accountability in applying s. 19 of the Prevention of Money Laundering Act, 2002 (‘PMLA’). This case, which originated from a Central Bureau of Investigation (‘CBI’) probe into alleged corruption within the excise policy, underscores the critical role of judicial scrutiny in ensuring arrests are grounded in substantial evidence and comply with statutory safeguards. The SC’s scrutiny of the appellant’s arrest by the Directorate of Enforcement (‘ED’) highlights the imperative to uphold constitutional liberties and prevent the misuse of investigative powers, marking a significant step towards safeguarding justice and due process in legal proceedings.
Brief Facts
The case originated from a CBI investigation initiated in August 2022 regarding criminal conspiracy and corruption related to the excise policy for liquor sales. Although the appellant was not initially an accused in the CBI chargesheets, the ED later recorded an Enforcement Case Information Report (‘ECIR’) based on offences detailed under the Regular Case (‘RC’) registered by CBI in August 2022. Subsequently, it filed multiple prosecution complaints. However, the appellant was only named as an accused in the 7th supplementary complaint recorded in May 2024.
The ED’s investigation focused on uncovering criminal elements within the excise policy, revealing instances of preferential profit margins and restrictions on license ownership. These findings formed the basis for allegations against the appellant, accusing him of conspiring to benefit certain individuals in exchange for kickbacks.
It was alleged that funds from these kickbacks, totalling Rs. 45 crores, were used in the Aam Aadmi Party (‘AAP’) election campaign in Goa. The allegations extended to the appellant’s individual and vicarious liability for orchestrating and utilizing proceeds of crime. Additionally, the appellant was accused of non-cooperation with the investigation, reportedly ignoring nine summonses issued by the authorities, which eventually led to his arrest.
Against this arrest and the subsequent remand orders of the appellant to the ED, the appellant moved a writ petition before the Delhi High Court, which dismissed his petition. Against this dismissal, the appellant filed this appeal.
Contention of the Parties
The appellant argued that his arrest and the subsequent remand to the ED custody by the Special Court violated s. 19(1) of the PMLA, thus rendering them illegal. He emphasized the need to examine s. 19 and its judicial interpretations, asserting that the arrest did not meet the legal standards set by the judiciary. The appellant contested that his arrest was based on selectively used incriminating material while exculpatory evidence was disregarded, indicating bias. He asserted that pre-arrest statements from the co-accused did not implicate him, suggesting post-arrest statements were coerced and inadmissible hearsay.
In response, the respondent argued that the power to arrest during an investigation is neither administrative nor quasi-judicial, implying that judicial scrutiny should not interfere with investigative procedures. They contended that the competent officer’s discretion and subjective opinion should prevail in making arrests. The respondent further argued that ‘reasons to believe’ are internal and confidential, different from the ‘grounds of arrest,’ which must be disclosed to the arrestee. Citing the SC decision in Vijay Madanlal Choudhary v. Union of India[ii], they argued that an ECIR does not need to be furnished to the accused, unlike an FIR. Therefore, the appellant is entitled only to the grounds of arrest, not the reasons to believe. The respondent drew parallels with ss. 227 and 228 of the Code of Criminal Procedure, 1973 (‘CrPC’), arguing that ‘sufficient grounds for proceeding’ and ‘grounds of presuming’ an offence indicate that grave suspicion is enough to frame charges and proceed to trial. Thus, having grave suspicion would suffice here as well.
Held
The SC, while granting interim bail to the appellant, referred certain legal contentions to a larger bench. The SC noted that s. 19(1) mandates an authorized officer to have the material in possession, form a ‘reason to believe’ based on this material that the person is guilty of an offence under PMLA, and inform the arrestee of the grounds for arrest as soon as possible. It made the following observations:
ED’s Argument Against Judicial Interference in s. 19: The ED argued that the judiciary should not interfere with its opinion under s. 19 of the PMLA. However, the SC emphasized that judicial scrutiny is essential to ensure that the ED acts according to the law and prevents arbitrary or whimsical arrests.
Court Jurisdiction under s. 19: It was held that the jurisdiction of the court involves a thorough review of the ‘reasons to believe’ recorded by the authorized officer under s. 19(1) of the PMLA, which is essential to ensure the statutory preconditions of s. 19(2). It held that courts must scrutinize the existence and soundness of ‘reasons to believe’ formed by the arresting officer.
Necessity of Arrest: The SC held even though this requirement is not explicitly mentioned under s. 19 of the PMLA, the expression has been given judicial recognition. An officer must consider the ‘necessity of arrest’ before arresting a person. The SC outlined that having the power to arrest (i.e., ‘reason to believe’) does not justify exercising it. Instead, an arrest must be based on reasonable satisfaction after investigating the complaint’s genuineness, the person’s complicity, and the necessity of the arrest.
Difference Between Ground of Arrest and Reason to Believe: The SC emphasized that s. 19 mandates officers must have material evidence and record their ‘reasons to believe’ in writing. This ensures arrests are based on tangible evidence, transparency, and accountability. Relying on the Canadian judgment in Gifford v. Kelson[iii], the SC held that ‘reason to believe’ conveys a higher standard than mere suspicion and requires a conviction of the mind founded on evidence. The SC emphasized that denying the accused a copy of the ‘reasons to believe’ would hinder their ability to challenge their arrest. Although providing the written ‘grounds of arrest’ is mandatory, this alone is insufficient for compliance. Thus, the accused must receive the ‘reasons to believe’ to effectively contest their arrest, except in rare instances where the court justifies redaction and approves it.
Ss. 227 and 228 arguments of the respondent: The SC rejected the ED’s argument equating ss. 227 and 228 of the CrPC with arrest under s. 19 of the PMLA. The ED’s claim that grave suspicion suffices to frame charges was deemed irrelevant to the legality of arrests during investigations. It observed that s. 19(1) of the PMLA mandates stringent safeguards against pre-trial arrests, which must be upheld. Additionally, the court noted that bail provisions under ss. 439 and 437 of the CrPC and s. 45 of the PMLA show that facing trial can occur while on bail, emphasizing that CrPC bail considerations do not impose the same restrictions as the PMLA.
Final Interpretation of s. 19 Based on Various Cases: Referring to Pankaj Bansal v. Union of India[iv], V. Senthil Balaji v. State,[v] and various other cases, the SC highlighted the importance of informing the arrested individual of the grounds of their arrest under a. 22(1) of the Constitution, necessary for exercising the right to seek bail. The SC further acknowledged the necessity of compliance with statutory requirements, stating unconstitutional arrests cannot be remedied by subsequent remand orders.
The Present Case: Based on the above discussion, in scrutinizing the appellant’s arrest, the SC focused on its legality rather than a bail appeal, emphasizing the need for a balanced assessment of all evidence. It stressed that ‘reasons to believe’ must encompass all available material and warned that failure to consider exculpatory evidence undermines legislative intent. The SC criticized the ED for selectively using evidence, prioritizing incriminating statements while neglecting earlier statements that did not implicate the appellant, casting doubt on subsequent claims made under duress. Ultimately, the SC concluded that the appellant’s arrest lacked an impartial evaluation of all pertinent evidence, highlighting the procedural flaw of selectively relying on incriminating evidence to the detriment of fair investigation and principles of justice.
Reference to a Larger Bench: The SC referred the matter to a larger bench to address the following questions:
a) Whether the ‘need and necessity to arrest’ is a separate ground to challenge the order of arrest passed in terms of s. 19(1) of the PMLA?
b) Whether the ‘need and necessity to arrest’ refers to the satisfaction of formal parameters to arrest and take a person into custody or relates to other personal grounds and reasons regarding the necessity to arrest a person in the facts and circumstances of the case?
c) If questions (a) and (b) are answered in the affirmative, what are the parameters and facts that are to be taken into consideration by the court while examining the question of ‘need and necessity to arrest’?
Lastly, the SC granted interim bail to the appellant due to the sacrosanct right to life and liberty, his over 90 days of incarceration, and the need for a larger bench to review the referred questions.
Our Analysis
Two aspects of this judgment that stand out in this ‘era of ED arrests’ are: first, the distinction between ‘grounds of arrest’ and ‘reasons to believe’ whereby the SC clarified that these are distinct requirements, and both must be provided to the accused to enable them to challenge the arrest. Second, the discussion on the necessity of arrest. While certain questions were referred to a larger bench, it was held that the ‘necessity to arrest’ must be considered by an officer before making an arrest, ensuring that arrests are based on genuine need and not merely on authority.
This decision by the SC is crucial as it underscores the fundamental principles of fairness, transparency, and accountability in the application of s. 19 of the PMLA. By emphasizing the need for judicial scrutiny and the requirement to base arrests on substantial evidence documented in ‘reasons to believe,’ the court safeguards against arbitrary or unjustified detentions. The judgment reaffirmed the principle that arrests without a warrant, especially under special legislations like the PMLA, must be subjected to stringent judicial review to prevent abuse of power and ensure the protection of individual liberties. The critique of selective evidence usage by enforcement agencies highlights the importance of conducting thorough and impartial investigations, ensuring that the rights of the accused are protected and that justice is served objectively. This approach not only strengthens the rule of law but also upholds constitutional guarantees of liberty and due process.
End Notes
[i] [2024] 164 taxmann.com 318 (SC).
[ii] 2022 SCC OnLine SC 929.
[iii] (1943) 51 Man. R 120.
[iv] 2023 SCC OnLine SC 1244.
[v] 2023 SCC OnLine SC 934.
Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.