ED should not have the power of arrest only for pre-trial detention, counsel tells SC

A three-judge bench of the Supreme Court comprising Justices A.M. Khanwilkar, Dinesh Maheswari and C.T. Ravikumar, on Tuesday, resumed hearing on a batch of petitions concerning the interpretation of the provisions of the Prevention of Money Laundering Act [PMLA], 2002.

Senior advocate Amit Desai made submissions attacking the twin conditions prescribed in Section 45(2) of the PMLA for the grant of the bail to an accused under the Act.

This section provides that notwithstanding anything contained in the Code of Criminal Procedure [CrPC], no person accused of an offence under the PMLA shall be released on bail or on his own bond unless—
(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and
(ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail.

Desai argued that these conditions are unreasonable, excessive and therefore are liable to be struck down.

He submitted that these twin conditions do not subserve the purpose of bail jurisprudence developed by the courts. Desai argued that while interpreting the provisions of CrPC concerning bail, which is Sections 437 (when bail may be taken in case of non-bailable offence) and 439 (special powers of High Court or Court of Session regarding bail) of CrPC, the Supreme Court has time and again reiterated that securing the presence of the bail accused should be the paramount consideration. He added that section 437, CrPC which imposes conditions similar to that of section 45(2) of the PMLA, is restricted to offences where the punishment extends to either life imprisonment or death. He thus submitted that under no circumstances could the imposition of such conditions to an offence where the maximum punishment leviable is seven years be said to be reasonable.

He submitted that provisions of the CrPC would show that the legislative intent, be it giving powers to the Magistrates to grant bail or avoidance of arrest in case of offences which are punishable for less than seven years, has always been to release a person on bail, or not arrest for such offences. However, under PMLA, where the maximum punishment prescribed is seven years, bail is still not the norm. He added that liberty being a concomitant of Article 21 of the Constitution, the law must provide for a remedy to secure and protect liberty, but if the threshold to the grant of bail is unreasonable and arbitrary, it defeats the very object of bail, he submitted.

Also Read: How PMLA lost its procedural fairness, counsel explains to the Supreme Court

He argued that PMLA being a special legislation itself is not sufficient to override the principles of bail. He submitted that the court needs to balance the right of the accused with the interest of the State. It can be achieved by ensuring that the accused is available to face the trial – which is also a part of the administration of justice.

Justice Khanwilkar at this stage raised a query, asking if the legislature makes the offence punishable with life imprisonment, then what? He added that just because the PMLA provides for the maximum punishment of seven years’ imprisonment does not reduce the gravity of the offence. He told Desai the argument of seven years of imprisonment to attack the twin condition was not impressive because the offence under PMLA is an offence against society at large and it affects the national economy.

Justice Ravikumar weighed in and said the object of the PMLA is also to protect the integrity and sovereignty of the State.

Continuing with his submissions, Desai argued that section 45 of PMLA should be interpreted so as to not take away the ability of the court to grant bail. He added that the court should be able to balance the interest of the State and the victim. He submitted that the Special Court, which is presided by a Senior Judge (Sessions Judge) be vested with the power to grant bail for offences where the maximum sentence prescribed under the Act is for seven years. He added that only in offences of serious nature, including the ones contemplated under the erstwhile Terrorist and Disruptive Activities (Prevention) Act and Prevention of Terrorism Act, as well as the currently active Maharashtra Control of Organised Crime Act and the Narcotic Drugs and Psychotropic Substances Act, where the act is orchestered by persons whose presence is difficult to secure, the imposition of conditions for bail like the ones in section 45(2) of PMLA could be held to be reasonable.

Desai submitted that Sections 44(2) and 45(2) of the PMLA must be consistent with the reasonable procedure as per the mandate of Article 21 of the Constitution. He cited the decision of the Supreme Court in Sundeep Kumar Bafna vs. State Of Maharashtra (2014), in which, it was held: The universal right of personal liberty emblazened by Article 21 of our Constitution, being fundamental to the very existence of not only to a citizen of India but to every person, cannot be trifled with merely on a presumptive plane”.

Desai then went on to make submissions against the power of arrest conferred upon the Enforcement Directorate [ED] under Section 19 of the PMLA. He submitted that guidelines to be read into Section 19 to safeguard the personal liberty of the citizens. Section 19 states 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”.

Justice Khanwilkar raised a query at this stage. He said section 19 provides safeguards against the arrests. He pointed out that arrest is permissible under section 19 only if there are reasons to believe, which must be recorded in writing, that the person is guilty of an offence under the PMLA. He thus suggested that under Section 167 of CrPC, the magistrate/special court can examine whether the procedure under section 19 of PMLA was followed before deciding the remand application.

Also Read: How PMLA enables complete inversion of burden of proof, counsel explains to the Supreme Court

Relying upon the decision of the Supreme Court in Joginder Kumar vs. State of U.P. (1994) and Arnesh Kumar vs. State of Bihar (2014), Desai argued that power of arrest does not necessarily mean that the accused must be arrested. He submitted that though section 19 of PMLA says the ED ‘may’ arrest, the ED has been making arrests in every case. He thus contended that the requirement of ‘justification’ for the arrests must be read into section 19 of the PMLA.

Desai argued that the power of arrest should not be exercised for pre-trial detention. Rather it should be exercised only for the purpose of facilitating the investigation. ED must satisfy whether the arrest of the accused is warranted.

On Friday last week, Desai argued against the retrospective application of the PMLA. He argued that for the purposes of determining the commission of the offence of money laundering under Section 3/4 of PMLA or for any other provision under the Act, the relevant time has to be time of the commission of the schedule offence, since only if there is a scheduled offence under the PMLA, can there be proceeds of crime and resultantly, commission of offence under section 3/4 of PMLA, which is also necessarily related to and arising from the proceeds of crime.

He argued that in order to constitute an offence of money laundering, the ingredient of ‘projection’ or ‘claiming’ it as ‘untainted property’ is imperative. This was also argued by senior advocate Kapil Sibal.

Desai submitted that the offence of money laundering requires ‘proceeds of crime’ (which are generated from the commission of the predicate offence), and for a person to ‘project or claim’ such proceeds of crime as ‘untainted property’. Therefore, a cause of action to commence an investigation under the PMLA can arise only if the commission of the alleged predicate offence has resulted in the generation of ‘proceeds of crime’, and such proceeds of crime are projected or claimed as untainted property subsequent to the inclusion of such offence to the Schedule of the Act. He thus submitted that in case the act of “projection” as contemplated under section 3 of PMLA has taken place prior to the date of the inclusion of the offence to the Schedule, the same could never be said to be “continuing”. The projection of the offence on any subsequent date is, therefore “stillborn” for the purpose of proceeding under the Act.

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