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Interpreting PMLA Arrest Guidelines: Delhi High Court’s Perspective on Oral Communication of Grounds of Arrest

Introduction

In the interlinked cases of Neeraj Singal v. Directorate of Enforcement[i](‘ED'), the Delhi High Court (‘DHC') addressed the compliance of s. 19(1) of the Prevention of Money Laundering Act, 2002 (‘PMLA’) concerning the oral communication of arrest grounds. The DHC held that orally informing the accused of the arrest reasons was proper prior to the Supreme Court (‘SC’) judgment in Pankaj Bansal v. Union of India[ii] delivered on 03.10.2023.  This judgment is significant as it clarifies the procedural requirements for arrest under the PMLA in the context of the evolving legal landscape. The DHC upheld the arrest of Neeraj Singal, the Petitioner, in connection with a money laundering probe by the ED, the Respondent, in a bank fraud case. This arrest was notably made before the pronouncement of the judgment in Pankaj Bansal (supra), adding a layer of complexity to the case.

Issue

In this case, the Petitioner claimed that the arrest was unlawful, arguing that the ED failed to adhere to the procedure laid out in ss. 41 and 41A of the Code of Criminal Procedure, 1973 (‘CrPC’). Additionally, the Petitioner argued about the compliance with s. 19(1) of the PMLA, asserting that the arresting officers did not provide the exact reasons for the in-written form as required. Instead, the Petitioner claimed, these grounds were only communicated orally, constituting a procedural lapse, and rendering the arrest invalid.

Brief facts

  • The two cases before the DHC shared similar legal issues, leading to a common judgment whereby the Petitioner was a former businessman, an ex-promoter, Vice Chairman and Managing Director of Bhushan Steel Ltd. (‘BSL’). BSL was acquired by Tata Steel in 2018 through insolvency proceedings.

  • Prior to the acquisition, the Ministry of Corporate Affairs (‘MCA’) initiated a probe into BSL’s affairs through the Serious Fraud Investigation Officer (‘SFIO’). This led to a complaint under various provisions of the Companies Act, 2013 (‘CA 2013'), including s. 447, and under ss. 409, 467, 468, 471 and 120B of the Indian Penal Code, 1860 (‘IPC’).

  • Subsequently, the Respondent registered filed the current case under the PMLA alleging the Petitioner’s involvement in a substantial banking fraud and money laundering scheme, causing losses exceeding Rs. 46,000 crores. It was alleged that the Petitioner and others illegally obtained loans via BSL and other companies and laundered the proceeds through a network of over 150 companies controlled by the Petitioner and his brother.

  • Despite claiming cooperation with the investigation, the Petitioner was summoned on 09.06.2023. On the same day, after sending a representative, ED officials conducted a search at the Petitioner’s residence and subsequently arrested him that evening. The Petitioner was produced before the Ld. Special Judge (CBI), Rouse Avenue Court on 10.06.2023. The Ld. Judge granted a 10-day remand to the Petitioner, which was further extended by an order dated 20.06.2023.

Held

  • The DHC observed that oral communication of arrest reasons at the time of arrest, followed by written communication within 24 hours, constitutes sufficient compliance with s. 19 of the PMLA and a. 22(1) of the Constitution of India. Referencing the SC judgment in Moin Akhtar Qureshi v. Union of India[iii], the DHC highlighted that such oral communication at the time of arrest meets the legal requirements and is not merely a technicality. Further, the DHC observed that providing the arrestee or their counsel with a copy of the ED remand application under s. 167 of the CrPC and s. 65 of the PMLA can satisfy the ‘informed’ requirement of s. 19(1) of the PMLA. This is valid if the application clearly outlines the materials and evidence forming the basis for the arrest.

  • The DHC acknowledged that the issue regarding oral communication of arrest grounds was conclusively addressed by the SC decision in Pankaj Bansal (supra). However, the directions within this requirement for the arresting officer to provide written communication of the arrest grounds to the arrestee are to be applied prospectively. The Court also relied on Ram Kishor Arora v. ED[iv], highlighting that the interpretation of the expression ‘as soon as may be’ in s. 19(1) of the PMLA assumes significance. It was noted that the Petitioner has signed the ‘grounds of arrest’ and DHC examined the authenticity of this document, including the Petitioner’s corrections made in his handwriting.

  • Addressing the petitioner’s contention regarding the ED’s delay in forwarding the arrest order and related material to the Adjudicating Authority (‘AA’) as per s. 19(2) of the PMLA, the DHC found that such an argument lacked merit. It was observed that the office of the AA was closed over the weekend, and hence the documents were appropriately forwarded on the next working day, i.e., 12.06.2023 as per s. 10 of the General Clauses Act, 1897.

  • The term ‘immediately’ in s. 19(2) of the PMLA was interpreted in light of rs. 3(5) and 3(6) of the PML (Maintenance of Records) Rules, 2005, which outlines the procedure for forwarding documents.

  • Based on these observations and the facts presented, the DHC held that the Petitioner’s arrest cannot be deemed illegal and consequently dismissed both cases against the Petitioner.

Analysis

In the context of the captioned case, the complexities inherent in economic offences and the ED’s pivotal role in enforcing the PMLA were brought to the forefront. The case, involving serious allegations of banking fraud and money laundering, underscored the investigative and prosecutorial challenges in such offences. The ED’s involvement was instrumental in advancing the case to the judicial stage. Arrests in economic offences like banking fraud and money laundering are inherently complex due to their sophisticated conspiracies and the significant financial impact on public funds. These crimes, which often involve intricate financial systems and a network of individuals and entities, present substantial investigative and prosecutorial challenges.

The DHC’s observations highlight the inconsistencies in the ED’s methods of communicating the grounds of arrest. This draws attention to the fundamental right under a. 22(1) of the Constitution which mandates being informed of the reasons for arrest. Against the backdrop of a rise in white-collar crimes in India, the case accentuates the necessity of balancing the rights of the accused with the imperatives of specialized criminal law enforcement. The judgment thus emerges as a vital reference point, elucidating the legal challenges and procedural intricacies in handling economic offences. It also potentially sets a precedent for how such cases may be approached in the future, emphasizing the need for a stringent yet fair enforcement mechanism.


End Notes:

[i] Neeraj Singal v. Directorate of Enforcement, 2024 SCC OnLine Del 64

[ii] Pankaj Bansal v. Union of India, 2023 SCC OnLine SC 1244

[iii] Moin Akhtar Qureshi v. Union of India (DB), 2017 SCC OnLine Del 12108

[iv] Ram Kishor Arora v. ED, 2023 SCC OnLine SC 1682


For ready reference, the two related court rulings previously published can be found below, providing valuable context and insights into the legal landscape surrounding PMLA:


Authored by Aishwarya Pawar, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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