Supreme Court Mandates Written Grounds for Arrest in Money Laundering Cases: Pankaj Bansal vs. Union of India (2023) INSC 866 (3 October 2023)

Date of the Judgment: 3 October 2023
Citation: (2023) INSC 866
Judges: A.S. Bopanna, J and Sanjay Kumar, J
Can an individual be arrested for money laundering without being provided a written copy of the reasons for their arrest? The Supreme Court of India recently addressed this critical question in a case concerning the Prevention of Money Laundering Act, 2002 (PMLA). The Court held that providing a written copy of the grounds of arrest is mandatory to ensure compliance with constitutional and statutory safeguards. This ruling emphasizes the importance of transparency and fairness in law enforcement procedures. The judgment was authored by Justice Sanjay Kumar, with Justice A.S. Bopanna concurring.

Case Background

The case originated from an FIR registered by the Anti-Corruption Bureau, Panchkula, Haryana, on 17 April 2023, concerning corruption and bribery. The FIR named Sudhir Parmar, a Special Judge, and others, including Roop Bansal, a promoter of the M3M Group. Prior to this, between 2018 and 2020, 13 FIRs were filed by allottees of IREO Group projects alleging illegalities. Based on these FIRs, the Enforcement Directorate (ED) recorded an Enforcement Case Information Report (ECIR) on 15 June 2021 against the IREO Group and its Vice-Chairman, Lalit Goyal. M3M Group and the appellants, Pankaj Bansal and Basant Bansal, were not named in these initial FIRs or the first ECIR.

On 14 January 2022, the ED filed a prosecution complaint against seven individuals, but again, M3M Group and the appellants were not included. Subsequently, the Anti-Corruption Bureau received information that Sudhir Parmar was showing favoritism to Lalit Goyal (IREO Group) and Roop Bansal and Basant Bansal (M3M Group). This led to the registration of the FIR dated 17 April 2023. On 12 May 2023, the ED summoned M3M India Pvt. Ltd. for information. On 1 June 2023, the ED raided M3M Group properties and seized assets. Roop Bansal was arrested on 8 June 2023, in connection with the first ECIR.

Pankaj Bansal and Basant Bansal, fearing action against them, obtained interim protection from the Delhi High Court on 9 June 2023. The High Court noted that they were not named in the first ECIR. However, on 13 June 2023, the ED recorded a second ECIR based on the corruption FIR, naming Sudhir Parmar, Ajay Parmar, Roop Bansal, and others. On the same day, at 6:15 PM, the ED summoned Pankaj Bansal and Basant Bansal to appear on 14 June 2023 at 11:00 AM in relation to the first ECIR. While at the ED office, Pankaj Bansal was served with fresh summons at 4:52 PM on 14 June 2023, requiring him to appear at 5:00 PM in connection with the second ECIR. Basant Bansal was arrested at 6:00 PM, and Pankaj Bansal was arrested at 10:30 PM on 14 June 2023, under Section 19(1) of the PMLA. They were then remanded to ED custody by the Vacation Judge/Additional Sessions Judge, Panchkula.

The appellants challenged their arrest and remand orders before the Delhi High Court, which directed them to approach the Punjab & Haryana High Court. The Punjab & Haryana High Court dismissed their petitions, leading to the present appeals before the Supreme Court.

Timeline:

Course of Proceedings

Pankaj Bansal and Basant Bansal initially approached the Delhi High Court challenging the first remand order dated 15 June 2023. The Delhi High Court directed them to approach the Punjab & Haryana High Court. The Punjab & Haryana High Court dismissed their writ petitions, stating that the constitutional validity of Section 19 of the PMLA had been upheld by the Supreme Court. The High Court also rejected their plea to quash their arrest orders and subsequent remand orders, citing the gravity of the allegations. The appellants then approached the Supreme Court.

Legal Framework

The core legal provision in this case is Section 19 of the Prevention of Money Laundering Act, 2002. This section outlines the powers of arrest by authorized officers of the Enforcement Directorate (ED). Specifically, Section 19(1) states:

“If the Director, Deputy Director, Assistant Director or any other officer authorised in this behalf by the Central Government, has reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of an offence punishable under this Act, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.”

The Supreme Court has previously interpreted Section 19 in Vijay Madanlal Choudhary vs. Union of India (2022) 10 SCALE 577, emphasizing that the authorized officer must record reasons for the belief of guilt in writing. The officer must also inform the arrested person of the grounds for arrest. Section 19(3) mandates that the arrested person be produced before a Special Court or Magistrate within 24 hours, complying with Section 167 of the Code of Criminal Procedure, 1973 (CrPC). The Court also considered the interplay between Section 19 of PMLA and Section 167 of CrPC, as discussed in V. Senthil Balaji vs. The State (Criminal Appeal Nos. 2284-2285 of 2023).

Article 22(1) of the Constitution of India, which guarantees protection against arbitrary arrest, was also considered. This article states 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.

Arguments

The appellants, Pankaj Bansal and Basant Bansal, argued that their arrests were a blatant abuse of power and process by the ED. They contended that the ED did not comply with the safeguards provided under Section 19 of the PMLA. Their specific arguments included:

• The expression “material in possession” under Section 19(1) must be confined to legally admissible evidence.
• The word “guilt” requires a higher standard than mere suspicion.
• The term “communicate” requires physical communication and furnishing the grounds of arrest in writing.
• The remand orders were passed in a routine manner without due application of mind by the Vacation Judge/Additional Sessions Judge, Panchkula.

The ED argued that:

• The arrests were made in accordance with Section 19 of the PMLA.
• The appellants were informed of the grounds of their arrest.
• The appellants were deliberately avoiding investigation and not complying with summons.
• The appellants were involved in money laundering and were non-cooperative during the investigation.

Innovativeness of the argument: The appellants innovatively argued that the term “communicate” in Section 19(1) of the PMLA should be interpreted to mean that the grounds of arrest must be provided in writing, not just orally informed. This argument sought to strengthen the procedural safeguards available to those arrested under the PMLA.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue for consideration:

1. Whether the arrest of the appellants under Section 19 of the PMLA was valid and lawful.
2. Whether the remand orders passed by the Vacation Judge/Additional Sessions Judge, Panchkula, were valid.
3. Whether the manner in which the appellants were informed of the grounds of arrest complied with Section 19 of the PMLA and Article 22(1) of the Constitution.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court held that the arrests of Pankaj Bansal and Basant Bansal were not in compliance with Section 19(1) of the PMLA. The Court emphasized that merely reading out the grounds of arrest does not fulfill the requirement of “informing” the arrested person. The Court mandated that a written copy of the grounds of arrest must be provided to the arrested person. The Court also found that the remand order passed by the Vacation Judge/Additional Sessions Judge, Panchkula, was invalid as the judge did not verify compliance with Section 19 of the PMLA. The Court noted the arbitrary actions of the ED in recording the second ECIR immediately after the appellants secured interim protection in relation to the first ECIR, which demonstrated a lack of bonafides.

How each authority was viewed by the Court:

• Vijay Madanlal Choudhary vs. Union of India (2022) 10 SCALE 577: The Court relied on this case to reiterate the importance of recording reasons for the belief of guilt in writing and informing the arrested person of the grounds of arrest. However, the Court clarified that while a copy of the ECIR is not mandatory, communication of the grounds of arrest is, and this communication must be in writing.
• V. Senthil Balaji vs. The State (Criminal Appeal Nos. 2284-2285 of 2023): The Court used this case to emphasize the magistrate’s duty to ensure compliance with Section 19 of PMLA and the consequences of non-compliance. The court highlighted that the Magistrate has to satisfy himself of the due compliance by perusing the order passed by the authority under Section 19(1) of the Act of 2002.
• Madhu Limaye and others (1969) 1 SCC 292: The Court cited this case to emphasize that a remand order cannot cure constitutional infirmities of an illegal arrest.
• State of Punjab vs. Gurdial Singh (1980) 2 SCC 471: The Court used this case to define malafide exercise of power, emphasizing that actions must be for legitimate reasons and not for extraneous considerations.
• Collector (District Magistrate), Allahabad and another vs. Raja Ram Jaiswal (1985) 3 SCC 16: The Court relied on this case to reinforce that power must be exercised reasonably and in good faith for legitimate reasons, not for extraneous considerations.
• Ravi Yashwant Bhoir vs. Collector (2012) 4 SCC 407: The Court referred to this case to define malafide exercise of power as the exercise of statutory power for purposes foreign to those for which it is intended.
• Devinder Singh v. State of Punjab (2008) 1 SCC 728: The Court cited this case to emphasize that statutory authorities must act within the four corners of the statute and follow the prescribed procedure.
• Santosh S/o Dwarkadas Fafat vs. State of Maharashtra (2017) 9 SCC 714: The Court used this case to clarify that custodial interrogation is not for the purpose of obtaining a confession and that non-cooperation does not equate to guilt.
• Moin Akhtar Qureshi vs. Union of India and others (2017 SCC OnLine Del 12108): The Court overruled this decision, which held that “informed” does not require written communication of arrest grounds. The Supreme Court held that a written copy is mandatory.
• Chhagan Chandrakant Bhujbal vs. Union of India and others (2017 Cri LJ (NOC 301) 89): The Court overruled this decision, which held that there is no statutory requirement for the grounds of arrest to be communicated in writing. The Supreme Court held that a written copy is mandatory.

What weighed in the mind of the Court?

The Supreme Court was primarily concerned with ensuring that the procedural safeguards under Section 19 of the PMLA and Article 22(1) of the Constitution are strictly followed. The Court emphasized the importance of transparency and fairness in the arrest process, particularly given the stringent nature of the PMLA. The Court was also critical of the ED’s conduct, noting the lack of bonafides and the arbitrary exercise of power. The Court’s reasoning was driven by the need to protect the fundamental rights of individuals and prevent abuse of authority by investigating agencies.

Fact:Law:

Logical Reasoning:

The Court considered alternative interpretations but rejected them. For instance, the ED argued that merely reading out the grounds of arrest was sufficient. However, the Court rejected this interpretation, holding that it does not adequately protect the rights of the arrested person. The Court also considered whether the remand orders could validate an illegal arrest but concluded that they could not.

The Court’s decision was based on a step-by-step analysis of the facts, legal provisions, and relevant precedents. The Court concluded that the ED had not followed the prescribed procedure for arrest under Section 19 of the PMLA and that the remand orders did not cure the illegality of the arrest. The Court’s decision emphasizes the importance of strict compliance with procedural safeguards and the need for transparency in law enforcement actions.

The Supreme Court quoted the following from the judgment:

“The way in which the ED recorded the second ECIR immediately after the appellants secured anticipatory bail in relation to the first ECIR, though the foundational FIR dated back to 17.04.2023, and then went about summoning them on one pretext and arresting them on another, within a short span of 24 hours or so, manifests complete and utter lack of bonafides.”

“To give true meaning and purpose to the constitutional and the statutory mandate of Section 19(1) of the Act of 2002 of informing the arrested person of the grounds of arrest, we hold that it would be necessary, henceforth, that a copy of such written grounds of arrest is furnished to the arrested person as a matter of course and without exception.”

“In effect, the arrest of the appellants and, in consequence, their remand to the custody of the ED and, thereafter, to judicial custody, cannot be sustained.”

There were no minority opinions in this case. The judgment was unanimous.

The implications of this judgment are significant. It clarifies the procedural requirements for arrests under Section 19 of the PMLA, emphasizing the need for written communication of the grounds of arrest. This ruling will likely impact future cases under the PMLA, ensuring greater transparency and protection of the rights of the arrested persons. The judgment also serves as a reminder to investigating agencies that they must adhere strictly to the law and cannot act arbitrarily.

This judgment introduces a new interpretation of the term “inform” in Section 19(1) of the PMLA. The Court held that “inform” means providing a written copy of the grounds of arrest to the arrested person. This interpretation is meant to ensure that the arrested person has full knowledge of why they are being arrested and can effectively exercise their legal rights. The Court’s reasoning is based on the constitutional mandate under Article 22(1) and the need to protect the rights of individuals against arbitrary arrests.

The Court rejected the arguments that merely reading out the grounds of arrest is sufficient. The Court emphasized that a written copy is essential forthe arrested person to understand the reasons for their arrest and prepare their defense effectively. This interpretation is a significant departure from previous practices and is expected to have a far-reaching impact on law enforcement procedures.

The Supreme Court’s decision in Pankaj Bansal vs. Union of India (2023) INSC 866 is a landmark ruling that reinforces the importance of procedural safeguards in the arrest process under the Prevention of Money Laundering Act, 2002. By mandating that a written copy of the grounds of arrest must be provided to the arrested person, the Court has ensured greater transparency and accountability in law enforcement actions. This judgment will have a lasting impact on future cases under the PMLA and will serve as a reminder to investigating agencies to adhere strictly to the law and respect the fundamental rights of individuals.