[Punjab & Haryana HC] Special Courts, PMLA Must Exercise Judicial Independence, Not Act as Extensions of the Enforcement Directorate

Introduction

In Balwant Singh v. Directorate of Enforcement[i], the Punjab and Haryana High Court, while adjudicating upon a writ petition filed under a. 226 of the constitution, read with s. 528 of Bhartiya Nagarik Suraksha Sanhita, 2023 (BNSS)/ s. 482 of the Code of Criminal Procedure, 1973 (‘CrPC’), quashed the arbitrary proceedings initiated by the Directorate of Enforcement (‘ED’), particularly the custodial interrogation order passed by the Special Court, PMLA.  

Brief Facts

• M/s Tara Corporation Limited, later renamed as Malaudh Agro Limited (‘TCL’),  engaged in cattle feed trading, had availed credit facilities from the Bank of India. Upon default, TCL’s account was classified as a non-performing asset (‘NPA’) with outstanding dues amounting to approximately Rs. 40.92 crores.

• TCL made a one-time settlement (OTS) attempt; however, the same failed, and consequently, TCL was declared a ‘Wilful Defaulter’. TCL subsequently challenged this declaration, and the High Court ruled in favour of TCL, thus overturning the bank’s decision.

• A formal complaint was filed with the Central Bureau of Investigation (‘CBI’), which registered a first information report (‘FIR’) qua TCL under several sections of the Indian Penal Code, 1860 (‘IPC’), including ss. 409, 420, 120-B, etc. and ss. 13(1)(d) and 13(2) of the Prevention of Corruption Act, 1988 (‘PC Act’), in which Balwant Singh (‘Petitioner’) was arrayed as an accused.

• The FIR filed by the predicate agency, CBI, alleged the commission of a ‘scheduled offence’, as defined under s. 2(y) of the Prevention of Money Laundering Act, 2002 (‘PMLA’). The ED initiated proceedings qua the Petitioner and registered an Enforcement Case Information Report (ECIR) in the present case.

• Subsequently, ED filed a complaint under s. 44 of the PMLA against seven individuals, including the Petitioner, after which the Special Court, having found sufficient grounds, proceeded to take cognizance of the offences against the accused persons.

• The Petitioner had, however, failed to appear before the Special Court even though summonses had been duly issued, thus prompting the Court to initially issue bailable warrants against him, followed by non-bailable warrants. However, pursuant to the Supreme Court’s ruling on Tarsem Lal v. Directorate of Enforcement[ii]*, *the Petitioner was directed to furnish personal bonds under s. 88 of the CrPC, with which he duly complied.

• Subsequently, the ED sought the custodial interrogation of the Petitioner for seven days, which was granted for 4 days by the Special Court vide order dated 05.10.2024. However, such a remand was made without sufficient reasons, which led to the filing of the present petition.

Held

The High Court, while quashing the order dated 05.10.2024 passed by the Special Court granting custodial interrogation, made the following key observations:

• The application filed by the Respondent seeking custodial interrogation was not for ‘further investigation’ under s. 44(1)(d), Explanation—(ii) of PMLA, but rather simply for ‘custodial interrogation’. The application lacked coherent reasoning and justification and, hence, did not warrant the grant of relief by the Special Court. By allowing the application for custodial interrogation, the Special Court acted as an extension of the ED. It illogically allowed the remand application and custodial interrogation without considering the relevant legal provisions.

• Further, the High Court also observed irregularities in the subsequent remand orders, noting the absence of reasons for repeated judicial custody remands. By analysing s. 309 of the CrPC, particularly Explanation 1, it was found that neither of the two preconditions for remand was satisfied in the present case. Hence, the case of Tarsem Lal (supra) was not properly applied in authorizing the Petitioner’s custodial interrogation.

• For the foregoing reasons, the High Court held that the impugned order for custodial interrogation and the subsequent orders for judicial custody of the Petitioner were passed without proper application of the judicial mind and were, hence, unsustainable in law.

Our Analysis

The High Court’s decision to quash a ‘routine’ and ‘unreasoned’ custodial interrogation order sets a necessary precedent that procedural safeguards and fundamental rights guaranteed to an accused person cannot be violated in a whimsical and flimsy manner. Special courts are duty-bound to analyse a case and the factual matrix thereof before granting coercive relief such as custodial interrogation by statutory authorities, such as the CBI, ED, etc., especially when a person’s personal liberty is at stake.  The High Court emphasised the need for reasoned orders, highlighting the lack of justification for custodial interrogation and subsequent judicial custody remands in this case. The High Court stressed that judges must exercise independent judgment and adhere to the requirements of PMLA and CrPC.  The decision underscores the importance of due process and judicial independence in PMLA proceedings.

End Notes

[i] CRWP-9783-2024 dated 18.11.2024.

[ii] (2024) 7 SCC 61.

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