Enforcement Directorate’s power to arrest under PMLA after Special Court’s cognisance

Case Description

On 16 June 2023, Tarsem Lal was accused of money laundering under Section 4 of the Prevention of Money Laundering Act, 2002 among certain other criminal offences. Lal was involved in an alleged conspiracy where revenue officials  wrongfully allotted ‘shamlat’ lands (village common lands made from contributions by multiple landowners) in a Punjab village to several persons who were not qualified to receive the land.

Lal, one of the co-accused, was alleged to have received large sums of money from property dealers by “misusing government machinery.” The offences alleged of Lal and the co-accused were ‘predicate offences’ listed in the Schedule of the PMLA. A predicate offence is the underlying criminal offence dealing with the ‘proceeds of crime’ in relation to which the original offence of ‘money laundering’ is committed. Since it was a predicate offence, the Enforcement Directorate conducted an inquiry into money laundering. Lal’s name emerged during the enquiry.

The ED registered an Enforcement Case Information Report (ECIR) after which a  Special Court under the PMLA took cognisance of the case.  Lal was not arrested after the registration of the ECIR. The Special Court issued a summons order for Lal but he failed to appear before the Special Court. The Court issued warrants for his presence. After the warrants were issued, he applied for anticipatory bail under Section 438 of the Code of Criminal Procedure, 1973. This application was rejected. 

He then approached the  Punjab & Haryana High Court seeking an anticipatory bail. On 19 December 2023, the High Court rejected his plea stating that his case did not meet the ‘twin bail conditions’ under Section 45 of PMLA, which relates to cognisable and non-bailable offences. To be granted bail under Section 45, the accused must prove prima facie that they were not guilty, and satisfy the Court that they will not commit any further offence.

On 23 December 2023, Lal appealed against the High Court’s decision in the Supreme Court  through a Special Leave Petition (SLP). 

On 11 January 2024, a Division Bench of Justices A.S. Oka and Ujjal Bhuyan, in an interim order, directed that Lal should not be arrested.  

Lal’s matter was tagged with eight other criminal appeals filed by Mohd. Aslam Khan, Shyam Lal, Raghbir Singh, Iqbal Singh, Gurpreet Singh, Balbir Singh and Mukesh Mittal, all of whom in distinct PMLA cases had not appeared before the Special Court after getting summoned. The Special Courts had issued warrants to procure their presence after which they had all filed for anticipatory bail before the Special Court which was rejected. The High Courts had rejected their prayers, following which the Supreme Court had passed individual interim orders protecting each of them from arrest.

Arguments of the Appellants

Lal argued that an investigation is considered to be complete when a Special Court takes cognisance under Section 44(1)(b) of the PMLA. The cognisance is taken by the court on the basis of the complaint filed by the officers. He argued that an arrest under Section 19 of the PMLA would be illegal after cognisance as it would be considered as a punishment to an undertrial. He also argued that the special court shall follow all provisions of CrPC after taking cognizance. Not all, but only those sections of CrPC which are inconsistent with PMLA shall not apply. 

He argued that a summons is issued by a court for an appearance and not to take them into custody. The accused has to submit a bond for appearance under Section 88 of the CrPC and need not file a bail application. A bond for appearance is a form of undertaking by an individual binding them to appear before such court, as required, during the proceeding of a case. 

Arguments by Respondents

The ED argued that it can make arrests after a cognisance by a special court for further investigation and supplementary complaints. They also argued that PMLA has an overriding effect over CrPC.

They contended that the accused is already considered to be in custody at the time of appearance before a Special Court.  He accordingly needs to apply for bail under Section 439 of the CrPC. Further, a bond application  under Section 88 of the CrPC shall be considered the same as a bail application. 

The Judgement

On 16 May 2024, in a 37-page judgement authored by Justice Oka, the Supreme Court held that the ED cannot arrest a person under the PMLA after a cognisance is taken by a Special Court. The Court also noted that proceedings shall be governed under CrPC after a cognisance is taken by the Special Court as the trial procedure under CrPC is not inconsistent with PMLA. It is only when certain procedures under the PMLA are in contradiction with the CrPC, the courts shall give weightage to the PMLA. They also held that if the ED wishes to take a person into custody, they shall apply to the Court. The Court may grant permission after hearing arguments on that application. An appearance after a summons would not be deemed as custody. Accordingly, a bond for appearance won’t be construed as a bail application.