Key question on Enforcement Directorate powers before SC's larger Bench

Should there be an additional requirement for ED officers to demonstrate the need for arrest under Section 19 of PMLA?

A two-judge Bench of the Supreme Court, while granting interim bail to Delhi Chief Minister Arvind Kejriwal in connection with the Delhi excise policy case, referred a critical question to a larger Bench: Can an arrest under Section 19 of the Prevention of Money Laundering Act (PMLA) be challenged on the grounds that there was “no necessity to arrest” the individual?
 

Section 19 of the Act says if the Directorate of Enforcement (ED), on the basis of material in its possession, has “reasons to believe” that any person has been guilty of an offence punishable under PMLA, it may arrest such person. It mandates the recording of reasons for such belief in writing, with the grounds of arrest to be communicated to the accused “as soon as may be” (within 24 hours).
 

Kejriwal’s defence argued that his arrest would falter on the ground that the “reasons to believe” do not mention and record reasons for “necessity to arrest”.
 

Noting “the term ‘necessity to arrest’ is not mentioned  in Section 19(1) of the PML Act”, the apex court Bench comprising Justices Sanjiv Khanna and Dipankar Datta posed a pivotal question: “…whether the court while examining the validity of arrest in terms of Section 19(1) of the PML Act will also go into and examine the necessity and need to arrest.”
 

In simpler terms, the court asked whether merely satisfying the formal criteria for arrest is sufficient, or if there is an additional requirement to demonstrate the necessity and need for the arrest, beyond meeting formal parameters.
 

Sanjay Jain, senior advocate and former additional solicitor general of India, noted: “If we add up the ratio of recent judgments of the Supreme Court to the bare words of Section 19 of PMLA, it emerges that the power of arrest already stands circumscribed.” He argued that the “reasons to believe” for effecting arrest under Section 19 of the PMLA have now been subjected to a stricter threshold, which no longer accepts the classical test of “grave suspicion” as good enough reason to make arrest. It has to be based on “non-speculative, proportionately proximate, and concrete material pointing to the accused's role with credible certainty”.
 

The Supreme Court's 2022 ruling in the Vijay Madanlal Choudhary case upheld that the arrest under Section 19 of the PMLA was neither violative of the section itself nor of Article 22(1) of the Constitution.  Article 22(1) says any person who is in custody has to be informed as to why he has been arrested.
 

“However, in the Arvind Kejriwal case, the court examined the necessity and proportionality of the arrest in compliance with Section 19(1) of the PML Act,” said Ankur Mahindro, managing partner, Kred Jure.
 

The test of proportionality requires the court to balance the fundamental rights of the accused with the public purpose pursued. It requires the court to examine whether less restrictive measures could have been equally effective.
 

The Supreme Court, in the present case, emphasised that the power to arrest under the PMLA is not intended for investigation purposes. “Arrest can and should wait, and the power in terms of Section 19(1) of the PMLA can be exercised only when the material with the designated officer enables them to form an opinion, by recording reasons in writing that the arrestee is guilty,” the Bench said. Moreover, the court underscored that material exonerating the arrestee cannot be ignored when exercising arrest powers under Section 19(1).
 

Regarding making arrests, the ED argued: “Judicial scrutiny is not permissible as it will interfere with investigation, or at best should be limited to subversive abuse of law. Discretion and right to arrest vests with the competent officer, whose subjective opinion should prevail.”
 

But the court rejected this argument, saying: “We hold that the power of judicial review shall prevail, and the court/magistrate is required to examine that the exercise of the power to arrest meets the statutory conditions.”
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The two-judge Bench referred three key questions to a larger Bench: Whether the “need and necessity to arrest” is a separate ground for challenging an arrest under Section 19(1) of the PMLA; whether this “need and necessity” pertains to formal arrest parameters or personal grounds specific to the case; and, if questions are answered in yes, what parameters and facts should the court consider when examining the “need and necessity to arrest”.
 

Manoj Singh, senior partner at Lex Panacea LLP, observed that the ED often reiterates Section 19 in arrest briefs without specifying the need to detain the person. “The offence of money laundering in most of the cases are documents based, hence, the ED is required to inform as to what is the need and necessity to arrest a person and must be mentioned in the grounds of arrest,” he said.
 

The Supreme Court has postponed the petitions seeking reconsideration of the Vijay Madanlal Choudhary vs Union of India judgment, which upheld the constitutional validity of several PMLA provisions, until July 2024.