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Supreme Court Restricts Arrests by ED in Money Laundering Offences

Prashant Mara and Sidharth S. Kumar


The power of Enforcement Directorate (“ED”) officials to arrest persons suspected of money laundering has been whittled down by the Supreme Court of India (“SC”). The SC, in its judgment in Tarsem Lal v. Directorate of Enforcement, Jalandhar Zonal Office [2024 INSC 434], held that the ED Officials cannot arrest a person (suspect/accused) on charges of money laundering, once the Special Court established under the Prevention of Money Laundering Act, 2002 (“PMLA”) takes cognisance of a complaint filed by the ED against the accused.

 

The ED is the law enforcement agency in India tasked with several powers to tackle the menace of money laundering.  Under Section 19 of the PMLA, an ED official can arrest a person if he has a reason to believe that an accused is guilty of money laundering. PMLA provides two mandatory safeguards to ensure that this power is exercised by the ED officials in a fair and accountable manner:

i) the need to record the reasons for his belief that a person is guilty and needs to be arrested; and

ii) the requirement to inform the person about his grounds for arrest.


The instant judgment of the apex court is significant because when an accused is arrested for money laundering, the PMLA has specified onerous twin conditions under Section 45 that the Special Courts must consider while granting bail to him/her. Those conditions are extremely high thresholds, which makes it difficult for the accused to secure bail in money laundering offences.

 

The SC has restricted the ED’s power to arrest an accused under the PMLA only until the Special Courts get involved. The ED conducts investigations and files complaints before the Special Court against the accused who has engaged in money laundering. The Special Court has to take cognisance of the complaint and examine whether a prima facie case has been made out to proceed against the accused.  Thereafter, the Court issues a summons to the accused person to appear before it and answer the charges levelled against him/her. According to the SC, once such a summons goes out from the Special Court, the ED officials are powerless to arrest the accused without a warrant issued by the Court.

 

Following are the key takeaway points from the judgment regarding the arrest and bail of the accused under the PMLA:

a) Under the PMLA, the power of ED officials to arrest an accused lasts only until the Special Court takes cognisance of the complaint filed by the agency. However, the judgment does not deal with the power of the ED to arrest an accused for investigation before filing any complaint before the Special Courts.

b) The Special Courts cannot issue arrest warrants against the accused in the first instance. Initially, a summons has to be issued to the accused to appear before the Special Court and answer the charges alleged in the complaint.

c) Arrest warrants may be issued by the Special Court only if the accused intentionally avoids the summons or fails to appear before the Court after the summons has been duly served upon him.

d) Once the accused appears before the Special Court and the ED needs to secure his custody for interrogation, the agency must apply to the Court for custody. The Special Court must grant the accused an opportunity to hear before deciding the application for custody.

e) The accused is not required to apply for bail after he enters his appearance before the Special Court, provided he was not arrested earlier by the ED and continues to be in custody.

f) The Special Court can exempt an accused from personal appearance if he/she applies for such exemption.  

g) Suppose the ED wants to conduct a further investigation concerning the same offence. In that case, it may arrest a person not named as an accused in a complaint already filed before the Special Court, provided the requirements for arrest under the PMLA are fulfilled.

 

The guidelines laid down in this SC judgment would go a long way in curbing unwarranted arrests by the ED. If the accused are responsive and cooperate with the investigation and the trial for the money laundering offence, the Courts cannot allow law enforcement agencies to trammel their liberty. The judgment completes the scheme of supervision exercised by the Special Courts over arrests made by the ED Officials.

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