2025 (11) TMI 1032 - HC - Money Laundering

Bail denied under PMLA as arrest justified by investigation materials; Section 19(2) and Section 45 considered

Sanjay Surekha @ Sanjay Kumar Surekha Versus The Directorate of Enforcement

HC dismissed the bail application and upheld the arrest under the PMLA, finding the arresting officer's written grounds and reasons to believe were based ... Money Laundering - economic/predicate offences - reasons to believe that the person is guilty of an offence under the PMLA - material was already in possession of the arresting officer prior to arrest of the petitioner or not - non-compliance of Section 19(2) of the PMLA - non-fulfilment of the twin test u/s 45 of the PMLA - HELD THAT:- Law enjoins that the reasons to believe that the person is guilty of an offence under the PMLA should be founded on the material in the form of documents and oral statements. The authority in Amarendra Kumar Pandey v/s. Union of India and Others [2022 (7) TMI 1326 - SUPREME COURT] says that arrest under Section 19(1) of the PMLA requires careful scrutiny and consideration. Yet, at the same time, the Courts should not go into the correctness of the opinion formed or sufficiency of the material on which it is based, albeit if a vital ground or fact is not considered or the ground or reason is found to be non-existent, the order of detention may fail. The Courts have held that when arrest is illegal or is vitiated or fundamental rights of the accused under Article 21 and 22 of the Constitution of India have been violated, bail cannot be denied on the grounds of non-fulfilment of the twin test under Section 45 of the PMLA. In the case in hand, the arresting officer has recorded the grounds of arrest as well as his reasons to believe that the petitioner is guilty of the offence upon consideration of the material collected by him in course of investigation. Though in conclusion, he has stated four reasons which have necessitated the arrest of the petitioner, the details of investigation and material collected in course thereof have found place in the “grounds of arrest” and “reasons to believe” recorded by the officer. As stated earlier, sufficiency or adequacy of material on the basis of which the belief is formed by the officer or the correctness of the facts cannot be subjected to judicial review. Subjective satisfaction of the arresting officer with regard to the material and necessity to arrest appears to be in accordance with law. The petitioner has alleged non-compliance of Section 19(2) of the PMLA. The provision requires forwarding of a copy of the order alongwith material in possession of the arresting officer to the adjudicating authority in a sealed envelope immediately after his arrest. The Hon’ble Supreme Court, in Ram Kishore Arora [2023 (12) TMI 785 - SUPREME COURT] has observed that the material should be sent immediately and in any case within 24 hours. It has been held by the Punjab and Haryana High Court in Dilbag Singh @ Dilbag Sandhu v/s. Union of India [2024 (2) TMI 772 - PUNJAB AND HARYANA HIGH COURT] that it is incumbent upon the Court concerned to satisfy itself of the compliance of the conditions contained in Section 19 which would also include compliance of Section 19(2), before passing the order of remand for the reason that otherwise the concerned Court cannot affirmatively come to the conclusion that the reasons to believe that the person is guilty before arresting were actually recorded in writing or not and were based upon the material already in possession of the competent officer prior to arresting the accused. In the present case, the petitioner was arrested on December 18, 2024 and copy of the arrest order alongwith material in possession under Section 19(2) of the PMLA was sent to the adjudicating authority on December 23, 2024. However, since the “grounds of arrest” and “reasons to believe” were made over to the petitioner immediately after his arrest, the Court concerned was in a position to ascertain whether the material was already in possession of the arresting officer prior to arrest of the petitioner. The fact situation in the authority in Dilbag Singh can be distinguished from that of the present case and the arrest herein cannot be said to be vitiated due to delayed compliance of Section 19(2) of the Act. It is a fact that the petitioner is in custody since December 18, 2024. Constitutional Courts have frowned upon long detention of the accused in custody due to delay in investigation/trial. The accused has been favoured with the constitutional mandate of liberty in the event of unreasonable delay. However, investigation pertaining to economic offences involving deep rooted conspiracies and affecting economy of the country, as in the present case, has to be dealt with seriously and the burden of proof that the money involved is not tainted or is part of the proceeds of crime shifts on the accused under Section 24 of the PMLA. Though complaint and supplementary complaint has been submitted, further investigation of the case is in progress. There does not appear to be unreasonable delay in investigation, given the fact that investigation of economic offences as the present one is time-consuming. As submitted by the E.D., as many as 444 cases are found to have been pending against the petitioner. In the event the petitioner is released on bail at this stage, chances of his tampering with evidence and influencing witnesses which may adversely impact the investigation cannot be ruled out. The conduct of the petitioner is also not very trustworthy. There has been deliberate suppression of material facts by the petitioner as observed earlier. He is trying to influence the functioning of his companies and is indulging in uncalled for communications/activities even from judicial custody, as reported - the petitioner does not deserve to be released on bail at this stage having regard to the fact that he has not been able to overcome the twin conditions laid down under Section 45 of the PMLA. The prayer for bail is rejected at this stage. ISSUES PRESENTED AND CONSIDERED 1. Whether the arrest under Section 19(1) of the Prevention of Money Laundering Act (PMLA) was lawful: specifically, whether the arresting officer had recorded 'reasons to believe' based on 'material' in possession and furnished grounds of arrest to the arrestee as required by Section 19(1). 2. Whether delayed transmission of the arrest order and the material to the Adjudicating Authority in terms of Section 19(2) vitiates the arrest or remand. 3. Whether stay of proceedings in the predicate/ scheduled offence operates to suspend or eclipse independent PMLA prosecution and thereby entitle the accused to bail. 4. Whether the petitioner met the twin conditions under Section 45 of the PMLA for grant of bail (i.e., absence of prima facie case and no likelihood of tampering with evidence or influencing witnesses), having regard to the nature of the alleged economic offence, ongoing investigation, and conduct from custody. 5. The extent to which Courts may analyse merits at bail stage under PMLA, balancing avoidance of prejudice at trial with necessary factual consideration for bail adjudication. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Lawfulness of arrest under Section 19(1) PMLA Legal framework: Section 19(1) PMLA allows authorised officers to arrest if they have, on the basis of material in possession, 'reason to believe' a person is guilty of an offence; the reason must be recorded in writing and grounds furnished to the arrestee. Precedent Treatment: Authorities (including Arvind Kejriwal; Amarendra Kumar Pandey; Radhika Agarwal) establish that Section 19 contains in-built safeguards; courts should confine review to compliance with statutory safeguards and not probe sufficiency of material or correctness of facts at nascent stage of investigation unless there is manifest arbitrariness or gross violation. Interpretation and reasoning: The Court examined the arresting officer's recorded 'grounds of arrest' and 'reasons to believe' and found that the details of investigation and material collected were reflected therein. While the petitioner's Section 50 statement was recorded in the night, the arresting officer relied on other documentary and witness material. The Court applied the principle that adequacy of material is not normally subject to judicial review at this stage and concluded the subjective satisfaction of the arresting officer appeared in accordance with law. Ratio vs. Obiter: Ratio - Judicial review of PMLA arrests is limited to verifying statutory formalities and absence of manifest arbitrariness; if reasons to believe are recorded and based on material, arrest is not vitiated by mere adequacy/contention as to sufficiency. Obiter - Observations on the significance of night-time recording of Section 50 statement as a factor among other materials. Conclusion: The arrest under Section 19(1) was lawful; the arresting officer had recorded reasons to believe based on material in possession and furnished grounds to the petitioner. Issue 2 - Effect of delayed compliance with Section 19(2) Legal framework: Section 19(2) requires that immediately after arrest the arrest order and material in possession be forwarded to the Adjudicating Authority in a sealed envelope; courts have required prompt transmission (Ram Kishore Arora; related High Court decisions). Precedent Treatment: Authorities indicate transmission should be 'immediate' and within 24 hours in practice; certain decisions (e.g., Dilbag Singh) emphasize court's duty to ensure compliance before remand. Interpretation and reasoning: The Court differentiated precedents where non-compliance prevented courts from ascertaining pre-arrest material. Here, although the material was forwarded on the fifth day, the grounds of arrest and reasons to believe were furnished to the arrestee immediately after arrest, enabling the remanding court to assess whether material existed prior to arrest. The Court held that delayed physical transmission did not vitiate the arrest where the essential statutory safeguards (recording of reasons, informing arrestee) were observed and the remanding court could verify compliance. Ratio vs. Obiter: Ratio - Non-immediate physical forwarding under Section 19(2) does not automatically vitiate arrest if reasons to believe were recorded, furnished to arrestee immediately, and the remanding court could ascertain pre-arrest possession of material. Obiter - Emphasis on facts distinguishing cases of total non-compliance. Conclusion: Delayed forwarding of material under Section 19(2) (five days in the case) did not vitiate the arrest or remand due to prior compliance with Section 19(1) formalities and the remanding court's ability to satisfy itself of pre-arrest possession of material. Issue 3 - Impact of stay of predicate offence on PMLA proceedings Legal framework: PMLA prosecutions ordinarily require a predicate/scheduled offence as the triggering event; precedents (Vijay Madanlal Choudhary; M/s. Bharati Cement) caution against paradoxical outcomes and discuss dependency between scheduled offence and money-laundering prosecution. Precedent Treatment: Conflicting High Court decisions exist: some treat PMLA as stand-alone once ECIR lodges, while Supreme Court authorities caution that proceeds must be derived from scheduled offence. The Court referenced both lines and considered institutional orders affecting the predicate proceedings. Interpretation and reasoning: The Court found that the petitioner suppressed material facts regarding subsequent developments: after a Coordinate Bench stayed further proceedings in the predicate offence, a Division Bench stayed that stay (i.e., allowed predicate proceedings to continue). The Court accepted the position advanced by the Enforcement agency that PMLA proceedings are stand-alone and the stay of one bench was itself stayed - therefore the predicate proceedings are not effectively stalled. Given the continuation of scheduled offence proceedings, the petitioner could not claim that PMLA prosecution was eclipsed and thereby justify bail. Ratio vs. Obiter: Ratio - Stay of predicate/IPC proceedings does not ipso facto eclipse PMLA prosecution where (a) PMLA is treated as an independent proceeding and (b) judicial orders restore/permit continuation of predicate proceedings; factual posture of concurrent judicial orders is material. Obiter - Broader observations on legal tension between stand-alone character of PMLA and dependence on scheduled offence. Conclusion: The stay of some proceedings in the scheduled offence did not automatically bar continuation of PMLA prosecution in the factual matrix; petitioner was not entitled to bail on that ground. Issue 4 - Application of Section 45 PMLA twin conditions for bail Legal framework: Section 45 PMLA imposes twin tests for bail-Court shall not grant bail unless satisfied there are reasonable grounds that the accused is not guilty of money laundering and will not commit any offence while on bail or tamper with evidence. Precedent Treatment: Supreme Court and High Court authorities underline strictness of Section 45; in economic offences of large magnitude, courts weigh possibility of tampering, influence, and ongoing investigation when considering bail. Interpretation and reasoning: The Court assessed investigative material: alleged inflation of turnover, creation of shell companies, diversion of funds exceeding substantial sums, admission in Section 50 statement, identification of benami properties, ongoing creation of proceeds and alleged communications from custody. It noted lengthy custody but found no unreasonable delay in complex economic investigation. The petitioner's conduct-suppression of material facts to court and alleged communications/funding from custody-undermined trustworthiness. Given the magnitude of alleged proceeds, ongoing investigation, and risk of tampering/influence, the Court held the petitioner failed to satisfy the twin conditions. Ratio vs. Obiter: Ratio - Where prima facie material indicates deep-rooted economic conspiracy, large proceeds of crime, and credible risk of tampering or influence (including conduct from custody), the twin conditions under Section 45 are not met and bail can be refused. Obiter - Remarks on proportionality of detention and constitutional concerns about long incarceration where delay is unreasonable, but distinguished given present investigative complexity. Conclusion: The petitioner failed to discharge the burden under Section 45; bail was rightly refused given prima facie material, risk of tampering, ongoing investigations, and adverse conduct from custody. Issue 5 - Extent of merits consideration at bail stage Legal framework: Principle that courts should avoid elaborate merits discussion at bail stage to prevent prejudice, but may consider facts to the extent necessary for bail adjudication. Precedent Treatment: Supreme Court guidance (e.g., Kalvakuntla Kavitha) cautions minimal merits inquiry at bail stage; other authorities allow necessary factual consideration to assess statutory tests. Interpretation and reasoning: The Court acknowledged the principle but proceeded to consider factual aspects and investigative material to the extent necessary to determine compliance with Sections 19 and 45 and to address risk of prejudice, tampering, and bona fides. The Court limited inquiry to material necessary for bail determination without prejudicing trial. Ratio vs. Obiter: Ratio - Courts may and should avoid detailed merits but must examine factual material insofar as necessary to determine statutory prerequisites for arrest and the twin conditions for bail under PMLA. Obiter - Observations on balancing liberty interests where detention becomes punitive due to unreasonable delay (distinguished on present facts). Conclusion: Limited factual/merits inquiry was permissible and appropriate; it did not amount to prejudicial adjudication of the substantive case and supported refusal of bail on statutory grounds.