How this SC judgment on PMLA cases curtails the ED's powers

How SC curtailed ED's power to arrest?

In what can be seen as a clampdown on the powers of the Enforcement Directorate (ED), the Supreme Court, on May 16, ruled that once the special court in charge of cases under the Prevention of Money Laundering Act (PMLA), 2002, takes cognisance of a charge sheet, the ED cannot arrest the accused if they have not done so during the investigations.

According to the apex court, once   the Special Court takes cognisance of the offence punishable under PMLA, it assumes charge of arrests made under the case. The agency would need to take the permission of the Special Court if arrest is needed.

The Supreme Court (SC) held: “We cannot countenance a situation where before the filing of the complaint the accused is not arrested; but after the filing of the complaint, after he appears in compliance with the summons, he is taken into custody and forced to apply for bail.”

This means that when the ED conducts an inquiry but does not arrest the accused initially, it cannot arrest him after the court takes cognisance of the complaint against him. The judgment is premised on the fact that obtaining bail under PMLA is difficult owing to the `twin conditions' for bail.

A chargesheet  lays down the charges against an accused, says why a certain action of the accused is a crime, and which provisions of the PMLA cover it.

“The Supreme Court order has clarified that individuals who were interrogated but not arrested during the investigation, and later had charges filed against them, can seek bail as a right. This is based on the principle that if custody wasn't required during the investigation, it shouldn't be imposed after the fact, merely due to the filing of charges,” said Aviral Kapoor, Partner at Alagh & Kapoor Law offices.

Kapoor further noted that this judgment will not have any bearing on those arrested during the investigations, such as Delhi Deputy Chief Minister  (CM) Manish Sisodia and Delhi CM Arvind Kejriwal, and thus will not affect their bail applications.

In its judgment, the SC stated that, “If the ED wants custody of the accused who appears after the service of summons for further investigating the same offence, the ED will have to seek custody of the accused by applying to the Special Court.”

What is the impact of this judgment?

The PMLA is a special law that bestows certain special powers on the enforcing authority. Normal procedures for bail per the Criminal Procedure Code (CrPC) do not apply to PMLA.

Manoj Singh, Senior Partner, Lex Panacea, said, “Section 45 of the PMLA provides twin conditions which need to be considered before granting bail. Section 19 of the PMLA confers specific powers to arrest a person, which can be invoked by the competent officer after recording the reasons why the accused is guilty of  the offence of money laundering. The twin conditions, as provided under section 45 of the Act, will be applicable only in those cases where the ED has arrested a person by invoking section 19 of the Act.”

In July 2023, the SC upheld various aspects of the PMLA which give the ED its powers to arrest and interrogate. One of the things  the court upheld was that to obtain bail, an accused must prove that there are reasonable grounds to believe they are not guilty, and that they will not commit the offence if released. This is commonly known as the ‘twin conditions’ for bail. However, these conditions have come to be heavily criticised as they make it difficult for a person to obtain bail from the Special Court, and more often than not, the accused move the High Courts or the SC to get  bail.

In  the May 16, 2024, judgment, the SC has asserted that a person cannot be made to go through the ‘twin condition’ test to obtain  bail if the ED had not taken him into custody before the court took cognisance of the complaint, thus curtailing the ED’s power to arrest.

“This order provides relief to the accused who were interrogated during the investigation and a charge sheet was filed against them, but not arrested. It is settled law that if  a charge sheet is filed without arrest, then the accused can seek bail as a matter of right, because if custody was not required during investigation, then taking custody of the accused after the completion of investigation, merely because the charge sheet has been filed, amounts to curtailment of his liberty,” said lawyer Tushar Agarwal.

The judgment noted that if an accused appears before the Special Court after the summons have been issued to him, he shall not be treated as if he is in custody. “Therefore, it is not necessary for him to apply for   bail.   However, the   Special   Court   can   direct   the accused to furnish  a bond per Section 88 of the CrPC,” the judgment added.

So, when the ED, after investigations, files a complaint against an accused under PMLA which the court takes cognisance of and summons the accused, he cannot be treated as if he is under arrest and hence, does not have to apply for bail.

“If the Special Court has taken cognisance of the complaint filed under Section 44 of the PMLA against a person and issued summons, under such circumstances, the twin conditions envisaged in Section 45 would not be applicable once the accused appears before the court, ,” said Ankur Mahindro, Managing Partner, Kred Jure.