2026 (2) TMI 132 - HC - Money Laundering

Legality of arrests under PMLA: scope of judicial review limited; challenges to ECIR additions and alleged ignored material rejected.

Legality of arrests under the PMLA was examined by assessing whether the authorised officer considered contemporaneous material in possession, exculpatory ... Legality of arrest u/s 19(1) of the PMLA - Scope of judicial review of 'material in possession' and 'reasons to believe' - Consideration of exculpatory material and effect of subsequent additions to ECIR - principles of Wednesbury reasonableness - Compliance with procedural safeguards u/s 19(2) of the PMLA - Judicial review under Articles 226/227 of the Constitution - Remand orders by Special Court / Sessions Judge in PMLA proceedings - HELD THAT:- It is apparent that on the day of arrest there was no scheduled offence against the petitioners, and there was no basis for their arrest. The ‘reasons to believe’ as well as the ‘grounds of arrest’ are completely silent about the fact whether the FIRs were alive and what was the basis of arrest. The authorised officer has neither taken into account the stay order passed by this Court, nor the acceptance of cancellation reports. Relevant facts relating to the scheduled offences were not gathered by him, resulting in the exculpatory material being ignored/not considered which rendered the arrest illegal. In support of the contentions reliance was placed on the law laid down in Vijay Madanlal Choudhary and others v. Union of India and others, [2022 (7) TMI 1316 - SUPREME COURT (LB)] As apparent on record, the first FIR, 428 of 2019, was registered pursuant to an order passed by the Magistrate under Section 156(3) Cr.P.C., dated 09.07.2019, on a complaint filed by a home buyer. The order has been stayed by this Court on 19.07.2019 while entertaining a criminal miscellaneous petition against it which is still pending adjudication. The argument on behalf of the petitioners essentially is, when the very basis of registration of the FIR, the Magistrate’s order, has been stayed, the consequent FIR could not have been registered, nor could it have been taken into account for arresting them. The argument does not cut much ice for the reason, despite the order of stay the aforesaid FIR stands registered on 19.07.2019, and there is no restrain on further proceedings or investigation pursuant thereto by any Court of law. Nor has the registration of FIR been questioned by the petitioners. In these circumstances, non-consideration of interim order, dated 19.07.2019, by the authorised officer cannot be fatal to the impugned order of arrest passed against the petitioners under the PMLA. So far as the second and third FIRs, 430 of 2019 and 431 of 2019, are concerned, there is no denying the fact that despite settlement(s) dated 21.01.2020, having been arrived at between the parties thereto prior to the date of petitioners’ arrest, the FIRs had not been cancelled at the time of registering the ECIR and carrying out investigation pursuant thereto. Merely because these FIRs were made part of the ECIR later, by way of addendum dated 11.09.2025, it would not vitiate the petitioners’ arrest prior thereto on 21.07.2025. There is no restrain on the ED to investigate other FIRs noticed by it after registering the ECIR without making the same a part of the ECIR, nor is there any statutory provision creating such a fetter. Also, no procedure has been prescribed for taking on record new FIRs pertaining to scheduled offences that are discovered by the ED after registering the ECIR. A perusal of the documents shows the similarity is primarily in the facts of the case recorded therein. In case the officer has deemed it appropriate to record the material facts pertaining to the case in the ‘grounds of arrest’ as well as the ‘reasons to believe’, before arriving at the conclusion and recording his belief regarding the guilt, no exception can be taken to it. It is not stated to be violative of any prescribed procedure. The facts are not irrelevant to the documents; besides, it is not the petitioners’ case that the conclusions arrived at by the authorised officer are not germane to the facts mentioned therein, or that there is no reasonable nexus between the two; nor can it be said to be violative of the principles of Wednesbury reasonableness. Additionally, the argument is to be discounted keeping in view the scope of judicial review in examining an order of arrest, as laid down in Arvind Kejriwal case (supra), which prohibits merits review of such documents. There is no reason to believe that the mandatory procedure laid down under sub-section (2) of Section 19 PMLA has not been complied with by the ED. It goes without saying that dispute with regard to these facts, as raised by learned counsel representing the petitioners, cannot be gone into in exercise of power of judicial review. No merit in the petitions and the same are dismissed. Issues: Whether the arrests of the petitioners under Section 19(1) of the Prevention of Money Laundering Act, 2002 were illegal for want of requisite 'material in possession' and non-consideration of exculpatory material; and whether the procedure prescribed by Section 19(2) PMLA was violated.Analysis: The petitioners were accused of offences under Sections 3 and 4 PMLA arising from alleged diversion of funds and the ECIR was registered on 09.08.2021. The arrest on 21.07.2025 was challenged on grounds that the foundational FIRs were not live, exculpatory material (including cancellation reports and interim stay) was ignored, addendum to ECIR could not retrospectively validate the arrest, and the mandatory forwarding of 'material in possession' to the Adjudicating Authority under Section 19(2) PMLA was not complied with. The scope of judicial review over an arrest under Section 19(1) PMLA is limited and does not permit a merits re-evaluation of the material unless findings are unsupported by any evidence or are perverse. The classification of ECIR as an internal document was relevant to whether addition of FIRs after arrest vitiated the arrest. On the facts, the existence of registered FIRs and investigated material, including matters later added to ECIR, supplied a rational nexus to the recorded reasons to believe. The similarity between 'grounds of arrest' and 'reasons to believe' did not, by itself, demonstrate non-application of mind. Documentary evidence was placed before the Adjudicating Authority and acknowledged, addressing the procedural requirement of Section 19(2).Conclusion: The arrests and subsequent remand orders were lawful and the petitions challenging them are dismissed; the petitioners' contentions regarding absence of material, retrospective addition to ECIR, identical wording of arrest documents, and failure to comply with Section 19(2) PMLA do not invalidate the arrest.