Challenges to the Prevention of Money laundering Act #20: Solicitor General Tushar Mehta Defends ED’s Wide Powers of ArrestChallenges to the Prevention of Money Laundering Act
On March 8th, 2022, Justices A.M. Khanwilkar, Dinesh Maheshwari, and C.T. Ravikumar commenced the 20th day of final hearings in the challenges to the Prevention of Money Laundering Act, 2002 (PMLA). Having spent four days establishing the background and context for the Act, Solicitor General (SG) Tushar Mehta, on behalf of the Union government, began responding to the petitioners’ crucial challenges to the PMLA’s provisions for arrest and bail today.
Over 100 petitioners, many of whom are accused of money laundering themselves, have argued that the PMLA disregards the accused’s constitutional rights to liberty and a fair trial. They argue that Section 19 of the PMLA gives the Enforcement Directorate (ED) unchecked power to arrest accused persons without informing them of the grounds of arrest and the evidence against them. Such wide powers are susceptible to arbitrary use by the ED.
The PMLA hearings are among a small number of cases in which lawyers have been permitted to argue virtually, despite the fact that physical hearings have resumed at the Supreme Court (SC) after the Third Wave of COVID-19 in India. Today’s hearings were repeatedly interrupted by the same audio and video quality issues that have plagued the Court since the early days of the pandemic. Justice Khanwilkar was patient with Mr. Mehta during these glitches—a benevolence he rarely extends to less fortunate advocates who appear virtually on physical hearing days.
SG Mehta: PMLA Places Sufficient Safeguards on the ED’s Power to Arrest
Mr. Mehta argued that Section 19 of PMLA places seven crucial safeguards on the ED’s power to arrest, holding ED officers to a higher standard of accountability than the police who operate under the Code of Criminal Procedure, 1978 (CrPC). Mr. Mehta argued that these heightened safeguards prevent Section 19 from being misused.
First, Section 19 confers the power of arrest only to high-ranking officials—who arguably have more experience to use it wisely. Second, unlike Section 41 of CrPC—which allows the police to arrest merely on the basis of a complaint—Section 19 of the PMLA disallows the ED from making arrests without incriminating material against the accused. Third, the arresting officer must have reason to believe, based on this material, that the person arrested is guilty. The police, on the other hand, do not need to meet this high threshold of guilt under the CrPC. Fourth, the ED officer must record their reasons for believing the accused is guilty in writing. Fifth, these reasons must be sent in a sealed envelope, along with all the material the reasoning is based on, to a neutral adjudicatory authority. The adjudicatory authority is required to preserve this envelope, without opening it, for ten years to ensure that there is no manipulation by the ED. Sixth, the accused must be informed of the grounds for arrest. Seventh, any arrested person must be produced before a magistrate within 24 hours.
Keeping these in mind, Mr. Mehta concluded that the arrest provision under the PMLA is neither arbitrary nor unconstitutional. He further noted that the blind application of CrPC safeguards is unnecessary and will destroy the purpose of the PMLA, which is to prevent and punish money laundering.
Additionally, Mr. Mehta specifically argued that the requirement of providing notice to the accused before arrest, as laid down in Section 41(A) of the CrPC, cannot be applied to PMLA.
This is because money laundering is a sophisticated offence. The purpose of Section 19 is to ensure that the accused is not alerted to the fact that the ED is suspicious of their involvement in a money laundering offence. The slightest hint of an investigation would enable the accused to delete large swathes of evidence in seconds, argued Mr. Mehta.
Justice Khanwilkar probed Mr. Mehta as to why the accused could not be informed of the grounds for arrest. Mr. Mehta responded that the petitioners were misled in their belief that this was not already done. He reiterated that Section 19 expressly requires the ED to inform the accused of the grounds against them. That being said, the material evidence on which the grounds are based are withheld due to the sensitive nature of information surrounding money laundering crimes. He stated that, as per Section 19, the information collected was so sensitive that even the adjudicatory authority was not allowed to open the envelope containing the material.
Mr. Mehta further argued that the petitioners were incorrect to argue that the ED should only be permitted to make arrests after submitting a complaint to the magistrate. He stated that an accused is arrested for the purpose of custodial questioning, which may yield information that is crucial to include in the complaint. Arrest, hence, is a part of the ED’s investigation. The submission of a complaint, Mr. Mehta argued, indicates that the case has moved to the next stage of trial.
Mr. Mehta made submissions in defense of Section 45, which lays down the conditions for bail under the PMLA as well. Read more here.
To access court documents, and to read more of SCO’s incisive journalism on past hearings of the PMLA case, click here.