2025 (10) TMI 1077 - HC - Money Laundering

Section 19 PMLA arrests valid despite omission of Section 50 notice where reasons and material recorded; procedural lapse not fatal

Chaitanya Baghel Versus Directorate of Enforcement, GOI, Raipur.

The HC dismissed the petition, holding that officers under Section 19 PMLA may arrest where they record reasons to believe and sufficient material existed ... Money Laundering - seeking quashing of illegal arrest, reasons to believe, grounds of arrest, remand orders, and all consequential proceedings - illicit financial transactions and proceeds of crime - sufficient material exists with the authorized officer who had recorded his “reasons to believe” in writing - absence of need and necessity to arrest - requirement of authorized officer (Director, Deputy Director, Assistant Director or authorized officer) to independently record a “reason to believe” that the person has been guilty of an offence punishable under the Act - non-issuance of notice u/s 50 of PMLA - Grounds of arrest - non-cooperation by the accused - Investigation conducted without prior permission. HELD THAT:- Section 19(1) of the Prevention of Money Laundering Act (PMLA) grants officers of the Directorate of Enforcement (ED) the authority to arrest an individual they believe is guilty of a money laundering offence. This power is subject to specific conditions and safeguards intended to prevent arbitrary arrests. Non-issuance of notice u/s 50 of PMLA - HELD THAT:- Section 50 of the PMLA vests in the Director, Additional Director, Joint Director, Deputy Director or Assistant Director, the power to summon any person whose attendance may be necessary from giving evidence or for producing records during the course of investigation. The statement recorded under this provision carries significant evidentiary value, being deemed to have the same sanctity as that of evidence recorded before a civil court. It is therefore not a mere procedural formality but a substantive safeguard intended to ensure transparency, fairness and accountability in the process of investigation. It is pertinent to mention here that Section 19 and Section 50 of the PMLA are distinct provisions and operate in distinct and well defined domains. The power under Section 50 of the PMLA is not a pre condition for arrest under Section 19 of the PMLA. These are two separate and distinct conditions under the PMLA itself. Non-issuance of notice under Section 50 of the PMLA cannot be restrained to the Investigating Officer for arrest of accused under Section 19 of the PMLA. Therefore, non-issuance of notice under Section 50 of the PMLA to the petitioner is a procedural lapse which does not amount to illegality. Grounds of arrest - non-cooperation by the accused - HELD THAT:- It is pertinent to mention here that the petitioner was neither served with summons under Section 50 of the PMLA nor required to appear in relation to the alleged offence before the ED, therefore, the allegations of non-cooperation are incorrect mentioned in the document of ground of arrest but the arrest in the present case was not founded solely on the ground of non-cooperation but in the ground of arrest there are other grounds which justifies the custodial action, therefore, only on the basis of wrong mention in the ground of arrest i.e. the non-cooperation of the accused in investigation would not by itself amount to illegality because the arrest of the present petitioner was not founded solely on ground of non-cooperation but on the subjective satisfaction of the Investigating Officer based on material which was available with the ED. Therefore, this procedural lapse also does not amount to illegality whereas it amounts to irregularity. The Apex Court has held that mere non-cooperation to summons under Section 50 PMLA is not sufficient to constitute a ground for arrest under Section 19 of the PMLA. In Pankaj Bansal [2023 (10) TMI 175 - SUPREME COURT], the court emphasized that the ED must show tangible material and the decision to arrest must confirm to the safeguards and strictures of Section 19 of the Act. Investigation conducted without prior permission - HELD THAT:- The learned counsel for the ED contends that even after filing the prosecution complaint, it retains the statutory authority to conduct further investigation under the PMLA. However, the Apex Court has consistently held that such power is not unfettered and must be exercised subject to judicial oversight and the statutory safeguards prescribed under the Act. In Vijay Madanlal Choudhary Vs. Union of India [2022 (7) TMI 1316 - SUPREME COURT (LB)], the court emphasized that investigative powers, including those exercised post filing of a charge sheet must be exercised on the basis of tangible material and within the bounds of law. It is the duty of the Investigating agency that once a complaint filed before the Magistrate and Magistrate has taken cognizance thereafter the further investigation should be with the permission of the Magistrate. Upon consideration of the rival contentions of the parties and the material placed on record, this Court is of the view that the allegations of illegality in further investigation are not substantiated by any cogent material. The scheme of the PMLA permits the Investigating Agency to collect further evidence after filing of a complaint subject to the prior permission of the Special Court - As regards the non-cooperation and mechanical arrest, this Court finds that the issue involves disputed factual questions that cannot be conclusively determined in exercise of writ jurisdiction. The Grounds of Arrest, though brief, refer to the necessity of preventing destruction of evidence, influencing of witnesses and tracing of proceeds of crime. Whether such reasons are adequate or not, is a matter of assessment by the trial court. The ground raised by the petitioner in this petition are procedural lapses/irregularities which does not amount to illegality - the grounds raised in this petition are procedural lapses /irregularities not amounting to illegality and these are the grounds of bail. In light of the foregoing discussion, this Court finds no ground to interfere with the investigation or the arrest effected by the Investigating Agency. Petition dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the arrest effected under Section 19(1) of the PMLA was vitiated by absence of necessity and necessity to arrest, given prior possession of investigative material and long delay between formation of opinion and arrest. 2. Whether non-issuance of summons under Section 50 PMLA prior to arrest and allegations of 'non-cooperation' render the arrest illegal. 3. Whether the 'grounds of arrest'/'reasons to believe' furnished were templated, non-specific and therefore violative of Article 22(1) and statutory safeguards, permitting judicial review beyond mere formal compliance. 4. Whether delayed arrest predicated on statements of an absconding co-accused and alleged further investigation without judicial permission indicate mala fides, arbitrariness or abuse of process. 5. Scope and limits of judicial review under Section 528 BNSS / constitutional writ jurisdiction in challenges to arrests under the PMLA (i.e., legality/procedural compliance vs. re-appreciation of evidentiary sufficiency or merits). 6. Legality of remand orders passed by the Special Court and whether judicial remand cures any infirmity in arrest. 7. Whether enforcement agency could conduct further investigation and file supplementary complaints after filing an initial complaint without prior court permission, and consequences of any failure to obtain such permission. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Necessity of Arrest and Delay between Formation of Opinion and Arrest Legal framework: Section 19(1) PMLA requires an authorized officer to record in writing a 'reason to believe' based on material in possession that a person is guilty; arrest must be justified by necessity. Principles from Joginder Kumar, Arnesh Kumar, and Arvind Kejriwal frame the 'necessity to arrest' doctrine and factors analogous to Section 41 Cr.P.C. Precedent treatment: Court relied on Arvind Kejriwal, Pankaj Bansal, Priyavrat Mandhana and other authorities holding higher threshold for arrest where material is already seized and that mere power does not justify its exercise. Interpretation and reasoning: The Court noted the ED had material since 2022/Mar 2025 search and formed an 'opinion' then; arrest was effected four months later without disclosure of new material. Delay combined with lack of demonstrated fresh necessity undermines claimed need for custodial interrogation. However, disputed factual questions on adequacy and timing could be for trial court; judicial review limited to legality. Ratio vs. Obiter: Ratio-delay without fresh material may indicate lack of necessity and could vitiate arrest where no cogent justification is shown. Obiter-detailed assessment of evidentiary sufficiency is for trial. Conclusions: The Court found the allegations of delayed arrest and absence of newly disclosed material prima facie raised concerns but ultimately treated these as factual disputes not amenable to writ intervention where procedural compliance existed; the petition failed to establish illegality sufficient to quash arrest. Issue 2 - Non-issuance of Section 50 PMLA Summons and 'Non-cooperation' Legal framework: Section 50 PMLA empowers summons and recording of statements; not statutorily a precondition to arrest under Section 19(1). Precedent treatment: Authorities cited indicate Section 50 and Section 19 are distinct; issuance of summons is not mandatory prior to arrest (Ashish Mittal and other cited cases), while Pankaj Bansal recognizes that mere non-cooperation alone cannot justify arrest but may form part of grounds along with other material. Interpretation and reasoning: The Court acknowledged non-issuance of Section 50 summons deprives accused of an opportunity to cooperate, but held it to be an irregularity rather than per se illegality, since the statute distinguishes the powers. Allegations of non-cooperation without concrete demonstration were insufficient to vitiate arrest. Ratio vs. Obiter: Ratio-non-issuance of Section 50 notice is irregularity not automatically fatal to an arrest under Section 19 where other material justifies arrest; Obiter-principles of fairness and natural justice may require reasons when such opportunity is denied. Conclusions: Non-issuance and invocation of non-cooperation were held insufficient to quash arrest absent demonstration that non-cooperation was the sole or decisive ground and that statutory safeguards were otherwise breached. Issue 3 - Specificity and Authenticity of 'Reasons to Believe' / Grounds of Arrest Legal framework: Article 22(1) and statutory mandate require that arrested person be informed of grounds; precedents (Prabir Purkayastha, Arvind Kejriwal, Pankaj Bansal) require grounds to be individualized and not templated. Precedent treatment: Courts have drawn distinction between generic 'reasons for arrest' and specific 'grounds of arrest' that enable meaningful challenge; judicial review can examine whether reasons are founded on admissible material and whether exculpatory material was ignored. Interpretation and reasoning: The petition alleged mechanical and templated grounds; respondent maintained written reasons were furnished and based on material including Section 50 statements and recovered documents. The Court observed that contested adequacy of grounds engages disputed facts; where remand order records judicial application of mind, remedy is not writ unless remand is cryptic. Ratio vs. Obiter: Ratio-grounds of arrest must be case-specific to permit effective challenge; Obiter-presentation of reasons to the Special Court is not identical to furnishing to the arrestee, and courts may look behind 'reasons to believe' for arbitrariness. Conclusions: While emphasizing the requirement of specificity, the Court found no patent failure in this record adequate to quash the arrest; factual sufficiency to be addressed by trial court in bail/merit proceedings. Issue 4 - Delay, Reliance on Absconder's Statements and Alleged Mala Fides Legal framework: Abuse of process/mala fide exercise of power vitiates arrests; judicial review may probe improper motives under Wednesbury/unreasonable exercise of discretion. Precedent treatment: Priyavrat Mandhana and other authorities support scrutiny where arrest follows unexplained delay or selective prosecutorial conduct. Interpretation and reasoning: The Court noted timing (post-statements of an absconder), alleged failure to execute existing warrants, and selective approach by agency; such conduct may point to irregularity or mala fides. However, absence of cogent material proving mala fides and the availability of contested factual explanations limited the Court's ability to quash arrest in writ jurisdiction. Ratio vs. Obiter: Ratio-selective enforcement and unexplained delay can constitute mala fide conduct capable of vitiating arrest; Obiter-mere non-execution of a co-accused's warrant does not automatically establish mala fides as to another accused. Conclusions: The Court treated allegations as serious but ultimately concluded petitioner failed to show illegality (as distinct from irregularity) warranting quashing; factual issues reserved for trial and bail proceedings. Issue 5 - Scope of Judicial Review under Section 528 BNSS / Article 226 Legal framework: Judicial review permits scrutiny of legality and procedural compliance but not merits re-appraisal; arrests under special statutes attract limited interference except where statutory/constitutional safeguards breached or mala fides established. Precedent treatment: Arvind Kejriwal, Radhika Agarwal, Vijay Madanlal Choudhary and others delineate four-fold doctrinal test (admissible material, consideration of exculpatory material, review for improper motive, proportionality) and limit review to legality rather than evidentiary sufficiency. Interpretation and reasoning: The Court reiterated that it cannot substitute its view for authorized officer absent clear mala fide or complete absence of material. Judicial review is not a mini-trial; remand orders by judicial magistrate generally curative unless cryptic or devoid of reasons. Ratio vs. Obiter: Ratio-judicial review is confined to legality/procedural compliance and detection of mala fides; Obiter-courts should undertake in-depth scrutiny where reasons are unclear or arbitrary. Conclusions: The Court dismissed the petition on the ground that challenges amounted to re-appreciation of material and timing, which are within the narrow ambit of judicial review and not established here as illegal or tainted by mala fides. Issue 6 - Validity of Remand Orders and Effect on Challenge to Arrest Legal framework: Judicial remand under Section 167/Section 19(3) produces custody by virtue of court order; established authority holds that valid reasoned remand generally cures initial procedural infirmities unless remand order is cryptic or magistrate failed to apply mind. Precedent treatment: Madhu Limaye, Pragyna Singh Thakur, V. Senthil Balaji and Pankaj Bansal establish that remand may cure arrest defects but a remand lacking application of mind or failing to examine grounds can be impugned. Interpretation and reasoning: The remand order in this record was found reasoned and to reflect application of mind; therefore challenge to arrest could not be sustained via writ predicated on initial arrest irregularities. Ratio vs. Obiter: Ratio-a reasoned judicial remand displaces a collateral attack on the antecedent arrest unless remand is cryptic or shows non-application of mind. Conclusions: The Court held remand order defeated the petitioner's challenge and dismissed the petition, leaving the accused free to seek statutory relief (bail) before the trial court. Issue 7 - Authority to Conduct Further Investigation and Filing of Supplementary Complaints Legal framework: Section 44 PMLA and its Explanation permits subsequent/supplementary complaints based on further investigation; distinction between further investigation and reinvestigation (A.S. Peter). Precedent treatment: Vijay Madanlal Choudhary and Hardeep Singh clarify scope: further investigation and filing of supplementary complaints are permissible though subject to court oversight when material is sought to be brought during trial. Interpretation and reasoning: The Court observed statutory scheme permits further investigation and supplementary complaints; where further investigation occurs post-cognizance, prior permission of court is prudent when material is to be placed on record during trial, but absence of such permission constitutes irregularity not necessarily nullity. Ratio vs. Obiter: Ratio-ED can conduct further investigation and file supplementary complaints; Obiter-such power must be exercised within statutory safeguards and judicial oversight as appropriate. Conclusions: Allegations of unlawful further investigation were not substantiated to amount to illegality; any procedural irregularity did not warrant quashing of arrest and investigation in the writ forum. Final disposition: The petition challenging arrest, reasons to believe, grounds of arrest and remand orders was dismissed for want of establishment of illegality or mala fide; petitioner permitted to seek statutory remedies (bail) before the trial court.