Supreme Court Upholds ED Arrest: Furnishing Grounds of Arrest Sufficient Under PMLA (15 December 2023)

LEGAL ISSUE: Whether providing the grounds of arrest to an arrestee under Section 19 of the Prevention of Money Laundering Act, 2002 (PMLA) by handing over the document, taking it back after endorsement, and not furnishing a copy at the time of arrest renders the arrest illegal.

CASE TYPE: Criminal Law, Prevention of Money Laundering Act

Case Name: Ram Kishor Arora vs. Directorate of Enforcement

Judgment Date: 15 December 2023

Introduction

Date of the Judgment: 15 December 2023

Citation: 2023 INSC 1082

Judges: Bela M. Trivedi, J. and Satish Chandra Sharma, J.

Can an arrest by the Directorate of Enforcement (ED) be deemed illegal if the grounds of arrest are shown to the arrestee, acknowledged with a signature, but not provided as a copy at the time of arrest? The Supreme Court of India recently addressed this critical question concerning the interpretation of Section 19 of the Prevention of Money Laundering Act, 2002 (PMLA). This judgment clarifies the procedure for informing an individual of the grounds for their arrest under the PMLA, particularly regarding whether a physical copy of the arrest grounds must be provided immediately. The bench comprised Justices Bela M. Trivedi and Satish Chandra Sharma, with the opinion authored by Justice Bela M. Trivedi.

Case Background

The appellant, Ram Kishor Arora, was the founder of M/s Supertech Limited, a real estate company. The company and its group entities undertook various projects in Delhi NCR and Uttar Pradesh between 1988 and 2015. Due to several reasons, 26 FIRs were registered against the appellant in different jurisdictions.

On 09 September 2021, the ED registered an Enforcement Case Information Report (ECIR) against M/s Supertech Ltd. and others, initiating an investigation under the PMLA. The appellant was summoned multiple times under Section 50 of the PMLA, and his statements were recorded.

In March 2022, insolvency proceedings were initiated against M/s Supertech Ltd. before the National Company Law Tribunal (NCLT), which passed some interim orders. The appellant appealed to the National Company Law Appellate Tribunal (NCLAT) with a settlement proposal. During the pendency of these proceedings, the ED issued a provisional attachment order on 11 April 2023, attaching some of the appellant’s personal properties. The ED also filed an original complaint on 04 May 2023, before the Adjudicating Authority, PMLA, seeking confirmation of the attachment order under Section 8 of the PMLA.

The Adjudicating Authority issued a show-cause notice to the appellant on 12 May 2023, under Section 8(1) of the PMLA, asking why the attached properties should not be confirmed as proceeds of money laundering. Before the appellant could respond, he was arrested by the ED on 27 June 2023, without being served a copy of the grounds of arrest.

On 28 June 2023, the appellant was produced before the Special Court, New Delhi, where the ED sought remand. The Special Court remanded him to ED custody until 10 July 2023, and subsequently to judicial custody for 14 days until 24 July 2023. The appellant’s bail application was dismissed on 22 July 2023. He was then sent to judicial custody for further periods, extended until 21 August 2023.

The appellant initially filed a writ petition before the Supreme Court, challenging the Special Court’s order dismissing his bail application. However, he withdrew the petition to approach the High Court. Subsequently, the appellant filed a writ petition before the High Court of Delhi, which was dismissed on 22 September 2023.

Timeline

Course of Proceedings

The appellant initially approached the Special Court, PMLA, Patiala House Courts, New Delhi, which remanded him to ED custody and later to judicial custody. After the dismissal of his bail application by the Special Court, the appellant filed a writ petition before the Supreme Court, which he later withdrew to approach the High Court. The High Court of Delhi dismissed his writ petition, leading to the present appeal before the Supreme Court.

Legal Framework

The core legal provision in question is Section 19 of the Prevention of Money Laundering Act, 2002 (PMLA), which outlines the powers of the ED to arrest. Specifically, Section 19(1) states:

“19. Power to arrest .- (1) If the Director, Deputy Director, Assistant Director or any other officer authorised in this behalf by the Central Government by general or special order, has on the basis of material in his possession, 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.”

This section allows authorized ED officers to arrest individuals if they have reason to believe that the person has committed an offense under the PMLA. The officer must record the reasons for the belief in writing and must inform the person of the grounds for their arrest “as soon as may be.”

Section 19(2) of the PMLA requires the arresting officer to forward a copy of the arrest order and the material in their possession to the Adjudicating Authority immediately after the arrest. Section 19(3) mandates that the arrested person be produced before a Special Court or a Judicial Magistrate within twenty-four hours.

Arguments

Appellant’s Submissions:

• The appellant argued that the ED’s action of merely showing the grounds of arrest, obtaining a signature, and then taking back the document, without furnishing a copy, violates Section 19(1) of the PMLA.
• The appellant relied on the Supreme Court’s decision in Pankaj Bansal vs. Union of India, 2023 SCC OnLine SC 1244, which held that a copy of the written grounds of arrest must be furnished to the arrested person as a matter of course.
• The appellant contended that the direction in Pankaj Bansal (supra) should be applied retrospectively, despite the use of the word “henceforth,” as it reiterates an existing legal principle stated in V. Senthil Balaji Vs. State and Ors., 2023 SCC OnLine SC 934.
• The appellant argued that the non-service of the grounds of arrest is an illegality that cannot be regularized later.
• The appellant submitted that the compliance of serving the grounds of arrest must be at the time when the arrest was made and not thereafter.

Respondent’s Submissions:

• The respondent contended that the decision in Pankaj Bansal (supra) was per incuriam as it deviated from the settled position of law in Vijay Madanlal Choudhary and Others vs. Union of India and Others, (2022) SCC Online SC 929, a prior three-judge bench judgment.
• The respondent argued that a two-judge bench cannot overlook a binding precedent of a larger bench.
• The respondent submitted that the direction in Pankaj Bansal (supra) to furnish the grounds of arrest in writing should only apply “henceforth” and not retrospectively.
• The respondent asserted that the arrest was in accordance with Section 19 of PMLA, as the grounds of arrest were handed over to the appellant, who signed each page and wrote that he had read the grounds.

Innovativeness of the Argument: The appellant’s argument innovatively sought to apply the decision in Pankaj Bansal (supra) retrospectively, despite the explicit use of “henceforth,” by arguing that it was merely a reiteration of an existing legal principle. This was a strategic attempt to leverage the evolving jurisprudence on the rights of arrestees under PMLA.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue:

1. Whether the action of the respondent ED in handing over the document containing the grounds of the arrest to arrestee and taking it back after obtaining the endorsement and his signature thereon, as a token of he having read the same, and in not furnishing a copy thereof to the arrestee at the time of arrest would render the arrest illegal under Section 19 of the Prevention of Money Laundering Act, 2002?

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Vijay Madanlal Choudhary and Others vs. Union of India and Others, (2022) SCC Online SC 929*: The Supreme Court upheld this three-judge bench judgment as the binding precedent, emphasizing that informing the person about the grounds of arrest is sufficient compliance with Article 22(1) of the Constitution.
• V. Senthil Balaji vs. State and Ors., 2023 SCC OnLine SC 934*: The Court acknowledged that this case stated that the grounds of arrest must be “served” to the arrestee. However, it clarified that this does not necessarily mean a physical copy must be provided at the moment of arrest.
• Pankaj Bansal vs. Union of India and Others, 2023 SCC OnLine SC 1244*: The Court clarified that the direction to furnish a copy of the written grounds of arrest is prospective from the date of the judgment. The Court also implied that this judgment was per incuriam.
• Abdul Jabar Butt and Another vs. State of Jammu & Kashmir, AIR 1957 SC 281*: The Court used this case to interpret the phrase “as soon as may be,” stating it means “as early as possible without avoidable delay.”
• Durga Pada Ghosh vs. State of West Bengal, (1972) 2 SCC 656*: The Court relied on this case to reinforce the need for prompt communication of the grounds of arrest to enable the arrestee to make a representation.
• Assistant Commissioner, Income Tax, Rajkot vs. Saurashtra Kutch Stock Exchange Limited, (2008) 14 SCC 171*: The Court distinguished this case, stating that the direction in Pankaj Bansal (supra) was not retrospective.
• Union of India and Another vs. Raghubir Singh (Dead) by LRs. Etc., (1989) 2 SCC 754*: The Court reiterated the importance of consistency and certainty in the law declared by the Supreme Court, emphasizing the doctrine of binding precedent.
• Chandra Prakash and Others vs. State of U.P. and Another, (2002) 4 SCC 234*: The Court reaffirmed the principle that a pronouncement of law by a Division Bench of the Supreme Court is binding on a Division Bench of the same or smaller number of Judges.
• Sundeep Kumar Bafna vs. State of Maharashtra and Another, (2014) 16 SCC 623*: The Court used this case to explain the concept of per incuriam, stating that a decision can be per incuriam if it is not possible to reconcile its ratio with that of a previously pronounced judgment of a co-equal or larger bench.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to maintain judicial discipline and uphold the binding nature of precedents set by larger benches. The Court emphasized that the three-judge bench judgment in Vijay Madanlal Choudhary (supra) had already settled the law regarding the validity of Section 19 of the PMLA and the compliance requirements under Article 22(1) of the Constitution. The Court also considered the practical implications of its decision, ensuring that the interpretation of “as soon as may be” was reasonable and balanced the rights of the arrestee with the operational needs of the investigating agency.

The Court noted that the expression “as soon as may be” contained in Section 19 of PMLA should be construed as “as early as possible without avoidable delay” or “within reasonably convenient” or “reasonably requisite” period of time. The Court also noted that since a duty is cast upon the concerned officer to forward a copy of the order along with the material in his possession to the Adjudicating Authority immediately after the arrest of the person, and to take the person arrested to the concerned court within 24 hours of the arrest, the reasonably convenient or reasonably requisite time to inform the arrestee about the grounds of his arrest would be twenty-four hours of the arrest.

The court also considered that the very use of the word “henceforth” in Pankaj Bansal (supra) implied that the requirement of furnishing grounds of arrest in writing to the arrested person was not mandatory or obligatory till the date of the said judgment.

Fact:Law Ratio: The ratio of Fact:Law in this case is 20:80. This indicates that the court’s decision was primarily driven by legal considerations and the interpretation of legal provisions, with a lesser emphasis on the specific factual aspects of the case.

Logical Reasoning:

The Court considered alternative interpretations, particularly the appellant’s argument that the direction in Pankaj Bansal (supra) should apply retrospectively. However, the Court rejected this interpretation, emphasizing that the use of “henceforth” clearly indicated a prospective application. The Court also rejected the argument that the non-furnishing of a copy of the grounds of arrest at the time of arrest was an incurable illegality, holding that the arrest was valid as the appellant was informed of the grounds and acknowledged them.

The Court’s decision was that informing the person arrested about the grounds of arrest, along with an acknowledgment, is sufficient compliance with Section 19 of the PMLA and Article 22(1) of the Constitution. The requirement to furnish a copy of the grounds of arrest in writing is prospective from the date of the judgment in Pankaj Bansal (supra).

The reasons for the decision were:

• The binding precedent set by the three-judge bench in Vijay Madanlal Choudhary (supra) which upheld the validity of Section 19 of PMLA and held that informing the person about the grounds of arrest is sufficient compliance of Article 22(1) of the Constitution.
• The principle of judicial discipline, which requires that decisions of larger benches be followed by smaller benches.
• The prospective nature of the direction in Pankaj Bansal (supra), which used the word “henceforth”.
• The interpretation of “as soon as may be” as “as early as possible without avoidable delay,” which the Court determined to be within 24 hours of the arrest.
• The factual finding that the appellant was informed of the grounds of arrest and acknowledged them.

The Court did not have a minority opinion. The decision was unanimous, with both judges concurring with the reasoning and conclusion.

The Court’s reasoning was based on a strict interpretation of the law and the principle of stare decisis. It applied theprinciple of binding precedent to resolve the conflict between the two-judge bench judgment in Pankaj Bansal (supra) and the three-judge bench judgment in Vijay Madanlal Choudhary (supra). The Court also gave a purposive interpretation to the phrase “as soon as may be” in Section 19 of the PMLA, balancing the need for prompt communication of the grounds of arrest with the practical realities of law enforcement.

Conclusion

The Supreme Court’s judgment in Ram Kishor Arora vs. Directorate of Enforcement clarifies that under Section 19 of the PMLA, informing an arrestee of the grounds of arrest by showing the document and obtaining an endorsement, without providing a physical copy at the time of arrest, does not render the arrest illegal. The requirement to furnish a copy of the grounds of arrest in writing, as stated in Pankaj Bansal (supra), is prospective from the date of that judgment. This decision underscores the importance of adhering to binding precedents and ensures that the interpretation of legal provisions is consistent with the established principles of law.