The power to arrest under the Prevention of Money Laundering Act (PMLA) cannot be exercised on the whims and fancies of Directorate of Enforcement (ED) officers''
{Supreme Court in Arvind Kejriwal vs. Directorate of Enforcement}

On July 12, the Supreme Court's division bench of Justices Sanjiv Khanna and Dipankar Datta granted interim bail to Delhi Chief Minister Arvind Kejriwal in the liquor scam money laundering case. The court wondered if the ED even had a consistent, uniform and one-rule-for- all policy on when they should arrest people. It said the ED's power to arrest must be based on objective and fair consideration of material against a person. The July 12 verdict should be seen as a setback to the ED, as it raised serious questions about Kejriwal's arrest's legality. Although this verdict didn't provide full relief to Kejriwal, but it cast doubt on the ED's credibility, potentially aiding his future legal battles in the Delhi Excise Policy Case.

What was the Delhi Excise Policy 2021-22?

The Delhi Excise Policy 2021-22 was drafted by the ruling Aam Aadmi Party (AAP). This policy mainly focused on moving out the govt. led retail sector, and making way to large private sectors and firms in the liquor market. The policy was structured by a group of ministers from the cabinet, and the draft was approved and accepted by the government in March 2021.

When the final draft was presented before the Lieutenant Governor Vinai Kumar Saxena for approval, he assented to the bill with a condition that new liquor vendors in non-confirmed areas could only be opened upon the permission of the Municipal Corporation of Delhi. By this policy, for the first time ever, all state-owned liquor shops were going to be shut and transferred completely to private business players.

Although this policy was projected as a reform in the excise and retail liquor sector by boosting the revenue by INR 9,500 crores but later on, the new policy was withdrawn in September 2022 after one year of its implementation. The Delhi government backed the old policy to be continued again and cited the loss of excise revenue as a major reason for the withdrawal of Excise Policy 2021-22.

Development of the alleged Liquor Scam Case:

The case arose out of a report submitted by Delhi Chief Secretary Naresh Kumar to Lieutenant Governor (LG) Vinai Kumar Saxena in July 2022, pointing to alleged procedural lapses in the formulation of the Delhi Excise Policy 2021-22. The chief secretary's report said arbitrary and unilateral decisions taken by Sisodia in his capacity as Excise Minister had resulted in financial losses to the exchequer estimated at more than INR 580 crore. In July 2022 Delhi LG recommended a CBI probe into formulation of excise policy.

On 20 August 2022, CBI filed FIR against 15 people, including Manish Sisodia as he was holding the portfolio of Excise ministry. On 22 August 2022, ED registered a separate money laundering case. In this case, initial arrests were made from the so-called ˜South Group' which involved Hyderabad based business entities. Some arrested persons belonging to the South Group secured bail after becoming approvers but their statements given in the ED custody led to the arrest of AAP leaders including Satyendra Jain, Manish Sisodia, Sanjay Singh and finally Chief Minister Arvind Kejriwal.

Allegations against Arvind Kejriwal:

Mr. Kejriwal was arrested by the Enforcement Directorate on 21st March 2024 and became first sitting CM to be arrested by the ED in such a case. According to the ED, Aam Admi Party chief Arvind Kejriwal was kingpin of the conspiracy and he was directly involved in the formulation of the excise policy, which was drafted considering the favours to be granted to the South Group. The ED claims that the South Group secured uninhibited access, undue favours and attained stakes in established wholesale businesses and multiple retail zones (over and above what was allowed in the policy), and paid Rs 100 crore as a kickback to AAP leaders in return.

According to the ED's complaint, this proceeds of crime (100 crore) was spent in Goa election campaign by the Aam Admi Party, of which Arvind Kejriwal is the ultimate decision maker. Earlier, Delhi's Rouse Avenue Court on June 20, granted regular bail to Mr. Kejriwal, pointing out that the federal agency had failed to procure any direct evidence linking him to the proceeds of crime. However, the ED moved the High Court the next day, alleging that the ruling was perverse and based on irrelevant facts.

Acceding to the ED's plea, the High Court imposed an interim stay on Mr. Kejriwal's release and reserved its verdict to peruse the case records. In the meantime, CBI again came into picture by arresting Kejriwal when he was just on the brink of getting regular bail from ED. The July 12 verdict of the Supreme Court is another setback for the ED because it rejected the ED's claim that the accused can be denied a copy of the reasons to believe, which could enable challenging the arrest's validity.

The bench ruled that an officer acting under Section 19(1) of the PMLA cannot ignore exonerating material or selectively choose evidence implicating the person to be arrested. Kejriwal argued that the statements relied upon by the ED were coerced. Kejriwal also contended that the reasons to believe didn't mention the necessity to arrest, a concept recognized by the Supreme Court in Arnesh Kumar vs State of Bihar (2014).

He argued there was no necessity to arrest him on March 21. The bench found merit in his argument and questioned whether the ED has a policy on when to arrest someone under the PMLA. The ED should act uniformly, consistent in conduct, confirming one rule for all accused, the bench held. Noting Mr. Kejriwal's 90-day incarceration, the bench released him on interim bail with certain conditions. It left the decision to step down as Chief Minister to Kejriwal, while agreeing with many of his legal arguments against his arrest.

Despite its clear stance, the bench referred the question of whether need and necessity to arrest is a separate ground to challenge arrest under Section 19(1) of the PMLA to a larger bench. Hence, the Delhi Excise Policy case has become a very complex legal tussle between AAP and ED due to legal intricacies of the Prevention of Money Laundering Act (2002).

Legal Intricacies of the Prevention of Money Laundering Act (PMLA), 2002:

Prevention of Money Laundering Act (PMLA) 2002 is an Act passed by the Indian parliament which came into force in 2005. This law was enacted with the distinct objective of combating large scale drugs smuggling and terror financing at the international level. In pursuance of the UN convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substance (1988), the Government of India enacted the PMLA on the recommendation of FATF (Financial Action Task Force). It was enacted by the Indian parliament under article 253 of the Indian constitution which empowers it to make laws for implementing international convention and treaties.

PMLA has been amended from time to time and in its present form, it is one of the most stringent laws enacted by the Indian parliament which provides rigorous imprisonment ranging from 3 years to 7 years for money laundering.

It confers blanket powers upon the ED to arrest, fine and confiscate the property of those individuals who are directly or indirectly involved in money laundering. ED officers are not deemed to be police, so they are not governed by the Criminal Procedure Code (CrPC), 1973. They are governed by the PMLA (2002) in toto, of which procedure itself is the punishment for the accused.

Section 19(1) of the PMLA 2002 provides the ground of arrest. It stipulates that ED officers can arrest the person if there is a reason to believe that the person is prima facie guilty. ED is not supposed to provide the written ground of arrest to the accused at the time of arrest. Thus, this Section is in contravention of Article 22 (1) of the Indian Constitution.

Notably, statements given in the ED custody are also admissible in the court of law. Such a self incriminating nature of the Section 50 of the PMLA is a blatant violation of fundamental right guaranteed under Article 20(3) of the Indian Constitution.

The fundamental principle of Anglo-Saxon jurisprudence is that ˜a person is presumed to be innocent until proven guilty' but PMLA turns this principle upside down. In other words, a person is presumed to be guilty until proven innocent as provided by the Section 24 of the PMLA.

An accused will be denied the bail by the entire hierarchy of courts because the bail provision contained in Section 45 of the PMLA stipulates that a judge can give bail only when he is satisfied that the accused is innocent. Such a stringent and high threshold for bail makes it near impossible for an accused to get the bail.

Many times, these provisions have been challenged in the Apex Court but various benches have given contradictory and different judgements. Notably in 2017, a bench of justices R.F. Nariman and S. Kaul held that the condition of ˜reverse burden of proof' under Section 45 of PMLA is unconstitutional. But after a few months in 2018, Central Government amended the law and re introduced this condition through a money bill.

These arbitrary provisions were again challenged in 2022 but unfortunately, the Supreme Court upheld the validity of all these provisions in Vijay Madanlal Chaudhary vs Union of India (2022). The review petition of this judgement has been admitted but till now, it has not been listed for the hearing.

Interestingly, there was another watershed moment in Pankaj Bansal vs Union of India (2023) where the Apex court ruled that an accused must be provided written ground of arrest under Section 19(1) of the PMLA. Relying solely on the verbal communication of ground of arrest under Section 19(1) is a blatant violation of the fundamental right guaranteed under Article 22 (1) of the Constitution. ED officers have consistently acted in contravention of this Article. But unfortunately, after a few months, this judgement was also diluted by another two judge bench consisting of the justices Bela M Trivedi and Satish Chandra Sharma, who held that such written ground need not be provided at the time of arrest, but only within 24 hours.

Recently, in a very surprising move, a two judge bench of the Supreme Court stayed the verdict of another two judge bench in Ritu chhabaria vs Union of India (2023) where it was rightly held that an accused has a right of default bail if ED's chargesheet is found to be incomplete and requires further investigation. Prolonged incarceration of the accused cannot be justified by half-baked ED complaint (chargesheet) with the sole intention of defeating the accused's right to default bail. The stay of such a progressive judgement (Ritu Chhabaria vs UOI) was widely criticized on the ground of creating an appellate court within the Supreme Court itself.

Moreover, there are another three significant challenges before the Supreme Court focusing on the interpretation and application of key aspects of the PMLA. But unfortunately, these petitions have been kept in cold storage for a long time.

What is the way forward?
Hence, it can be well deduced from the above discussion that the ED has been vested with unbridled powers through the PMLA. Now it is incumbent upon the courts to interpret these provisions in a just and equitable manner. There is a myriad of ambiguities regarding the definition of proceeds of crime, predicate offence and money laundering. The honorable Supreme Court must list these cases at the earliest which are pivotal in addressing fundamental questions regarding arrest, remand and bail procedures under the PMLA.

Though the recent judgement of the trial court and the Supreme Court in the Delhi Excise Policy case can be seen as the significant breakthroughs for Mr. Kejriwal and his party. But the final verdict on the case is unpredictable as of now. ED must complete the investigation and trial as soon as possible because prolong incarceration of a sitting CM and his ministers cannot be justified solely on the grounds of suspicion and unsubstantiated statements of the approvers.

It is undeniable that money laundering is a serious crime which must be dealt with an iron fist approach. However, it is also noteworthy that protection of individuals' rights and liberties is a cardinal principle enshrined in our Constitution. Hence it will be a win-win situation for all if we strike a delicate balance between empowering the enforcement agencies and safeguarding individual rights which are sacrosanct in a democratic nation.

Reference:

1. The Prevention of Money Laundering Act, 2002 (Act no.15 of 2003).
2. The Code of Criminal Procedure, 1973 (Act no. 2 of 1974).
3. Arnesh Kumar vs. State of Bihar, 8 SSC 273.
4. Vijay Madanlal Chaudhary vs. Union of India (2022), LiveLaw (SC) 633. URL: www.livelaw.in
5. Pankaj Bansal vs. Union of India (2023), LiveLaw (SC) 844. URL: www.livelaw.in
6. Ritu Chhabaria vs. Union of India (2023), LiveLaw (SC) 352. URL: www.livelaw.in
7. Arvind Kejriwal vs. Enforcement of Directorate, Criminal Appeal No. 2493 of 2024.

Award Winning Article Is Written By: Mr.Abdul Jabbar, a student at Faculty of Law, Jamia Millia Islamia, New Delhi.

Authentication No: JL421229429714-30-0724