Introduction
The Delhi High Court, in the case of Arvind Dham v. Union of India[i], critically examined s.19 of the Prevention of Money Laundering Act, 2002 (‘PMLA’). The petitioner challenged the legality of his arrest through a writ petition, contending that exculpatory material was disregarded, the mandatory ‘reasons to believe’ was not adequately furnished, and that his arrest was improperly justified on the grounds of non-cooperation, which conflicted with his right against self-incrimination.
This judgment aligns with a growing body of rulings shaping the evolving jurisprudence surrounding the PMLA. By addressing judicial scrutiny of arrests, procedural safeguards, and the necessity of arrest in financial investigations, the decision contributes to a more balanced interpretation of the law.
Brief Facts
The petitioner, a 63-year-old former promoter of M/s Amtek Auto Ltd. (‘AAL’), was linked to subsidiaries under the Amtek Group. Following the 2008 global financial crisis, AAL and its associates defaulted on loan payments, leading IDBI Bank and the Bank of Maharashtra to classify ACI Ltd. (‘ACIL’) as a non-performing asset (NPA). Forensic audits found no conclusive evidence of fraud.
The Central Bureau of Investigation (‘CBI’) registered First Information Reports (‘FIRs’) against ACIL and AAL under various provisions of the Indian Penal Code, 1860 (‘IPC’), corresponding to the Bharatiya Nyaya Sanhita, 2023 (‘BNS’) and the Prevention of Corruption Act, 1988 (‘PC Act’), wherein the petitioner was also arrayed as an accused. Based on these FIRs, the Directorate of Enforcement (‘ED’) registered two Enforcement Case Information Reports (‘ECIRs’) to investigate alleged money laundering.
Further, a public interest litigation (‘PIL’) was filed[ii] before the Hon’ble Supreme Court seeking an investigation into the affairs of the Amtek Group, wherein the ED was directed to investigate the Amtek Group. During the investigation, the CBI denied the ED’s request for copies of the chargesheet and FIR and a similar request before the Special Court (PMLA) was also rejected.
However, the ED continued its investigation wherein the petitioner appeared before it multiple times in compliance with summonses issued under s. 50 of the PMLA. His statements were recorded, and his residence was subjected to search and seizure proceedings under s. 17 of the PMLA. Despite his cooperation, the ED arrested the petitioner on 09.07.2024. On 13.08.2024, the Supreme Court clarified that its order in the PIL was for the ED to conduct an investigation and not to arrest the petitioner, whereby it permitted the petitioner to challenge his arrest before the High Court.
Held
The High Court engaged in a detailed discussion on the evolving jurisprudence surrounding s.19 of the PMLA, particularly in light of recent Supreme Court rulings. The primary focus was on whether the petitioner’s arrest complied with the legal safeguards set out in Arvind Kejriwal[iii], which consolidated and clarified earlier judgments such as Vijay Madanlal Choudhary[iv], V. Senthil Balaji[v], Pankaj Bansal[vi], Ram Kishore Arora[vii], and Prabir Purkayastha[viii].
The High Court dismissed the petition, holding that the arrest under s. 19 complied with procedural safeguards. It reaffirmed that judicial review is limited to assessing compliance with legal conditions and does not extend to re-evaluating factual findings. It held that the arresting officer must record ‘reasons to believe’ in writing and communicate them to the accused within 24 hours, failing which the detention would be illegal. It was also clarified that the burden of proving compliance with this requirement rests on the ED, not the accused.
The Court reiterated that the power to arrest without a warrant under s. 19 is an exceptional power that must be exercised with strict adherence to procedural safeguards. However, it held that since Arvind Kejriwal (supra) was decided after the petitioner’s arrest on 09.07.2024, the ED could not be faulted for not adhering to a requirement that had not yet been crystallized. Nonetheless, it was noted that the grounds of arrest contained a detailed narrative, fulfilling the legal requirements.
The Court discussed the necessity of arrest but noted that whether 'necessity' is an independent ground for challenging an arrest is a question pending before a larger Supreme Court bench. However, in this case, the High Court found that large-scale financial transactions and potential evidence tampering justified the arrest. Although the Court found that the petitioner’s alleged non-cooperation could justify the arrest – as non-cooperation does not equate to an admission of guilt – it held that the necessity of the arrest was justified due to large-scale financial diversion, insolvency proceedings involving Rs. 30,000 crores, and the risk of evidence tampering and influencing witnesses.
The Court acknowledged that exculpatory material, including forensic audit reports, must be considered but found that these reports contained disclaimers and lacked conclusive findings. The mere absence of a 'fraud' declaration did not negate money laundering allegations, particularly given the scale of financial transactions. The Court reiterated that such arguments should be raised during bail proceedings, not in a challenge to the arrest.
The Court reaffirmed that 'mere' non-cooperation is not a sufficient ground for arrest under s. 19, as held in Pankaj Bansal (supra). However, in this case, the High Court found that non-cooperation, along with potential evidence tampering and financial diversion, justified the arrest (with reference to P. Chidambaram[ix]). It was observed that since the remand order was issued after due consideration, it could not be challenged on procedural grounds.
The High Court, therefore, upheld the legality of the arrest, clarifying that its ruling did not touch upon the merits of the case, which could be examined at the bail stage. It reiterated that the petitioner’s claims of innocence and reliance on exculpatory evidence should be raised during bail proceedings rather than through a challenge to the arrest. Accordingly, the petition was dismissed.
Our Analysis
This case is of paramount importance because it balances the ED’s authority to investigate money laundering with the constitutional rights of the accused. It serves as a critical opportunity to understand the evolving jurisprudence around arrests under s. 19 of the PMLA, with the High Court extensively discussing recent decisions that shape the legality and application of this provision.
To begin with, the case clarifies the procedural requirements for arrests under s. 19 – a subject of much debate and litigation – emphatically reaffirming that the power to arrest without a warrant is extraordinary and must be exercised with extreme caution to prevent misuse.
A key takeaway is the confirmation that the arresting officer must record ‘reasons to believe’ in writing and communicate them to the accused within 24 hours. This requirement mandates the ED to present specific reasons, based on a proper assessment of material evidence, to justify an arrest. The burden of proving the legitimacy of these grounds rests on the ED, not the accused, establishing a robust mechanism of accountability designed to protect against arbitrary arrests under the PMLA.
An intriguing aspect of the case is the High Court’s handling of the necessity of arrest, a question referred[x] to a larger bench by the Supreme Court in Arvind Kejriwal (supra). While the ED provided a detailed narrative of reasons to believe – which the Court deemed sufficient – the judgment raises an important issue regarding the evolving threshold for assessing necessity. Although the Court reiterated that arrests should not be mechanical but must be based on demonstrable necessity, it emphasized that going forward, compliance with these standards is mandatory, thereby establishing a clear legal framework for future cases.
However, whether necessity constitutes an independent ground for challenging an arrest under s. 19 remains unresolved. By dismissing the petition and focusing on procedural legality, the High Court prudently avoided complicating this issue at this stage, leaving room for more comprehensive guidance from the larger bench in the future.
Regarding exculpatory material, the Court acknowledged that forensic audit reports and ‘no fraud’ declarations must be considered. However, it clarified that such material cannot override substantial evidence of financial misconduct. This reinforces the principle that selective reliance on exculpatory findings is insufficient to negate money laundering allegations, particularly when large-scale financial transactions are involved.
The treatment of non-cooperation is also noteworthy. While the defence leaned on the constitutional right against self-incrimination, the Court clarified that non-cooperation alone cannot justify an arrest under the PMLA, as reiterated in Pankaj Bansal (supra). However, this becomes relevant when combined with attempts to tamper with evidence or influence witnesses, as recognized in P. Chidambaram (supra).
Finally, The High Court reaffirmed that judicial review is limited to assessing compliance with procedural safeguards under s. 19. Courts cannot engage in a merits review of ED’s findings at the arrest stage, as substantive legal and factual challenges must be raised at the bail stage or during trial. This decision signals to law enforcement agencies that any misuse of power, even in complex financial fraud cases, will not be tolerated.
This decision marks a significant development in the judicial interpretation of s. 19 of the PMLA. It underscores the importance of procedural safeguards in preventing arbitrary arrests while affirming the ED’s investigative mandate. The ruling navigates the complex balance between law enforcement powers and individual rights by emphasizing procedural correctness, the necessity of arrest, and the role of exculpatory material. This judgment will serve as a key reference for future cases shaping PMLA jurisprudence.
End Notes
[i] [2024] 169 taxmann.com 564 (Delhi)[02-12-2024].
[ii] Jaskaran Singh Chawla v. Union of India & Ors., 2022 SCC OnLine SC 2100.
[iii] Arvind Kejriwal v. ED, [2024] 164 taxmann.com 318 (SC).
[iv] Vijay Mandanlal Choudhary v. Union of India, 2022 SCC OnLine SC 929.
[v] V. Senthil Balaji v. State, 2023 SCC OnLine SC 934.
[vi] Pankaj Bansal v. Union of India, 2023 SCC OnLine SC 1244.
[vii] Ram Kishore Arora v. ED, (2024) 3 SCC 51.
[viii] Prabir Purkayastha v. State, 2024 SCC Online SC 934.
[ix] P. Chidambaram v. ED, (2019) 9 SCC 24.
[x] Para 84, Arvind Kejriwal v. ED, [2024] 164 taxmann.com 318 (SC).
Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.