The international community has established the Financial Action Task Force (FATF), an intergovernmental organisation, that sets international standards to combat money laundering and terrorist financing. As part of its mandate, the FATF issued 40 recommendations, providing a framework for countries to prevent and combat these financial crimes.
In response to this international obligation, India introduced the Prevention of Money Laundering Bill in 1999, which was later enacted as the Prevention of Money Laundering Act (PMLA) in 2002 and came into force on July 1, 2005. The core objective of the PMLA is to address the laundering of illicit funds generated through activities such as drug trafficking. By targeting the flow of illegal proceeds, the legislation aims to protect the financial infrastructure of the country.
The beginning
If we were to envision a trilogy on the PMLA, the judgement of Vijay Madanlal Choudhary v. Union of India would undoubtedly serve as its first chapter. On July 27, 2022, the Supreme Court upheld several contentious provisions of the PMLA. The court also upheld the act’s constitutionality, justifying its decision by stating that certain provisions of the Act are reasonably linked to its objectives.
However, this analysis focuses on two main aspects:
First, the requirement for recording reasons for arrest in writing and communicating the grounds of arrest to the accused promptly. The court emphasised the constitutional mandate under Article 22(1) of the Indian constitution, which necessitates informing the accused of the grounds for their arrest.
Second, regarding the Enforcement Case Information Report (ECIR), which outlines offences investigated by the ED, the court clarified that while an ECIR is not a statutory document like an FIR, the accused must still be informed of the reasons for their arrest.
Although Vijay Madanlal Choudhary’s ruling mandated the communication of grounds for arrest at the time of such arrest, it did not specify the mode of communication – whether in writing or orally. This ambiguity was resolved in the subsequent case of Pankaj Bansal vs Union of India.
The middle
On October 3, 2023, the Supreme Court delivered its judgement in Pankaj Bansal v. Union of India, holding that the Enforcement Directorate must inform the accused of the grounds of arrest in writing. The court said that non-compliance with this requirement vitiates an arrest and entitles the accused to be set free unconditionally.
The court highlighted that the mode of conveying the grounds of arrest must necessarily be meaningful to serve the intended purposes. First, to ensure transparency and adherence to legal procedures, the court noted that if the grounds of arrest are only orally communicated, disputes may arise between the arrested person and the authorities regarding whether the person was informed about the grounds or not. These disputes will pit the word of the arrested person against the authorities. By furnishing a written record of the grounds of arrest, such disputes can be prevented, maintaining the integrity of the arrest process. Second, providing a copy of the grounds of arrest will not only inform the arrested person of why they are being arrested but will also enable them to seek legal counsel and, thereafter, present a case before the court to seek release on bail.
While the judgement defined the mode of information, it did not specify as to when it should be provided to the accused. This is where the Ram Kishor Arora v. Union of India judgement came into place.
The end
On December 15, 2023, in Ram Kishor Arora v. Union of India, the Supreme Court ruled that the accused need not be informed of the grounds of arrest in writing at the time of the arrest; however, this information must be furnished in writing within 24 hours. Additionally, the accused must be orally informed of the grounds at the time of the arrest. The bench interpreted section 19 of the PMLA that states the accused must be informed of the grounds of arrest as soon as may be.
In essence, the trilogy of judgments explains the journey and commitment of the court of law to ensure the mandate of fundamental rights. However, by the end of this trilogy, we witness a deviation from the court’s original commitment when the extra leverage of 24 hours is given to the investigating agencies.
The trajectory raises three significant contentions:
Undue leverage to the ED
It is now established legal precedent that the ED must provide the accused with a copy of the grounds of arrest within 24 hours, if not at the time of arrest. However, granting the ED this period undermines the constitutional mandate, as it gives the agency undue leverage over the accused.
The Act stipulates that if the authorised person, based on the evidence at hand, has reasons to believe that an individual has committed an offence punishable under the Act, they must record these grounds in writing before effecting an arrest. This means that if the Act itself makes it obligatory to record reasons before an arrest. It should, therefore, not be seen as a tedious demand from the agency but as a mandatory requirement for the officer to promptly provide the accused with a copy of the reasons for arrest.
As per Section 19, the accused must be brought before a magistrate within 24 hours. The ED seeks remand for further investigation in this duration. This requirement intersects with the precedent mandating the provision of a copy of the grounds of arrest within 24 hours.
It is foreseeable that the ED may consider the remand order as fulfilling the obligation to inform the accused of the reasons for arrest. However, the remand order cannot be relied upon to inform the accused of the reason for their arrest as it typically provides limited information and does not sufficiently convey the specific allegations or evidence that form the basis of the arrest.
Without comprehensive disclosure of the grounds for arrest, the accused’s legal counsel is placed at a significant disadvantage. The advocate will be unable to fully understand the nature of the charges or the basis upon which they are predicated, thereby hindering their ability to construct a robust and informed defence strategy.
It is a fundamental principle of criminal justice that the accused must be apprised of the reasons for their detention. This also goes against the procedural safeguards outlined in Article 22(1) which aim to provide the earliest opportunity for the arrested person to rectify any misconceptions and to understand the accusations against them. This allows the individual to exercise their right to consult a legal practitioner and be defended effectively. This principle ensures that the defence counsel can effectively represent their client, challenge the legality of the arrest and prepare for all aspects of the legal proceedings. This transparency is essential to uphold the rights of the accused and to ensure the integrity of the judicial process.
The essentiality of supplying the copy of grounds of arrest can be understood by the recent Supreme Court judgement of Prabir Purkayastha v. State which declared the arrest of NewsClick founder and editor-in-chief Prabir Purkayastha’s arrest and remand, under the Unlawful Activities Prevention Act, 1967 (UAPA), as illegal because the grounds of arrest were not supplied to him.
The Court examined the relevant sections of both the PMLA and the UAPA. It found no significant difference between the language of Section 19 of the PMLA and Section 43(B) of the UAPA, both dealing with the procedure of arrest. The Court concluded that the requirement to inform an individual of the grounds for their arrest, as interpreted in Pankaj Bansal’s case, should also apply to cases under the UAPA.
Specifically, the Court noted that the wording regarding the communication of arrest grounds in Section 43B(1) of the UAPA is identical to that in Section 19(1) of the PMLA. Further, the court elaborated that the constitutional safeguard under Article 22(1) of the Indian Constitution, which mandates that no person arrested shall be detained without being informed of the grounds of arrest “as soon as may be,” applies to both the PMLA and the UAPA.
The court addressed whether informing an individual of the grounds of arrest in writing is mandatory, even though Article 22 does not explicitly require written communication. The court referred to the Constitutional Bench’s judgment in Harikisan v. State of Maharashtra, which held that communicating the grounds of detention in writing and in a language understood by the detainee is essential. Failing to meet this requirement would invalidate the detention order, as it would violate the guarantee under Article 22(5) of the Constitution. The Purkayastha judgment underscored the importance of the Right to Life and Personal Liberty, emphasizing that any encroachment on these rights is strongly disapproved by the court.
Issues with ECIR
The ED argues that the ECIR, being an administrative document, falls outside the realm of the CrPC, and therefore, unlike an FIR, it cannot be provided to the accused. It has been proposed that the ECIR should be granted statutory recognition and elevated to the status of an FIR. This adaptation would alleviate the uncertainty associated with ED summons, as recipients frequently find themselves unsure whether they are being summoned as witnesses or accused individuals, primarily due to the confidential nature of the ECIR. In contrast, in cases involving FIRs, individuals can easily discern the nature of the summons by checking the FIR number online, a convenience not extended to ECIR-related summons. Standardising the ECIR’s status would streamline the process and provide clarity for all involved parties. If the person being summoned does not know whether they are being summoned as a witness or accused, they may give a statement that could be used against them.
The ED also argued that the disclosure of an ECIR may undermine the objectives of the Act as it often contains sensitive details, such as evidence possessed by the authority, and their premature disclosure could adversely affect the integrity of the ongoing enquiry or investigation. For these reasons, withholding an ECIR, as it is an internal agency document, cannot be construed as a violation of constitutional rights.
It is recommended that to balance transparency with investigative integrity, the authorised officers may redact sensitive information from the ECIR before providing the edited grounds of arrest to the accused. This approach preserves the confidentiality necessary for effective investigations while fulfilling the constitutional and statutory mandate outlined in PMLA.
It is to be noted that according to Article 21 of the Constitution no person shall be deprived of his life or personal liberty except according to procedure established by law. In the case of A. K. Gopalan v. State of Madras, the meaning of procedure established by law was interpreted to mean not just any procedure prescribed by a competent legislature, but the ordinary well-established criminal procedure sanctioned by the CrPC. There is no procedure established by law with respect to the ECIR under PMLA. In the absence of such a procedure, the procedure under the CrPC must be followed, and the accused needs to be given a copy of the ECIR.
Absence of Case Diary
The case diary, as mandated by Section 172 of the CrPC, maintains a chronological record of the investigation process conducted by the police officer. This detailed documentation includes every step taken during the investigation, such as the date and time of receiving information about the crime, the start and finish times of the investigation, locations visited, witness statements recorded, and evidence collected.
This comprehensive record ensures continuity and transparency in the investigation, serving as a crucial handover document when different officers handle the case at various stages. It provides a clear picture of the investigation’s progress for all involved parties, including courts and defence lawyers. The case diary is essential for maintaining continuity and transparency in the investigation process.
The PMLA mandates thorough investigations into money laundering activities but does not specifically require the maintenance of a detailed case diary similar to the one mandated by under CrPC. This creates significant concerns regarding potential violation of individual rights and due process of law. Without a mandated case diary, investigators are not required to maintain a chronological and detailed record of their actions, which can lead to reduced accountability for the investigating officers.
Furthermore, the absence of a structured record can enable investigators to manipulate or selectively present evidence without a transparent trail of how and when it was obtained. This can lead to biased or unjust conclusions, undermining the integrity of the investigation. In cases where multiple officers are involved in different stages of the investigation, the absence of a detailed case diary can result in inconsistent handovers. Critical information might be lost or altered, impacting the continuity and coherence of the investigation.
It is important to understand that the accused under PMLA does not have an automatic right to view the case diary. Access to the case diary is at the discretion of the court or the police officer. However, the significance of maintaining a case diary as noted above, lies in its ability to keep investigating agencies diligent and accountable throughout the investigation.
Furthermore, under criminal law procedure, it is considered a dereliction of duty if the magistrate does not request and review the case diary before authorising any form of custody for the accused. This includes both judicial and police custody. The haphazard maintenance of a case diary discredits those responsible and defeats the purpose for which it is required. Therefore, it is suggested that a similar practice needs to be followed in PMLA cases as well. This will enable the magistrate to objectively decide whether to remand the accused or not.
Recent judicial developments concerning the PMLA have highlighted critical issues detrimental to due process of law. Progress in addressing these issues has been delayed but promising, with an original bench formed to review the Vijay Madan Lal judgment focusing on two main aspects. First, whether the ECIR need not be supplied to the accused, and second, the reversal of the presumption of innocence. However, the bench was disbanded on November 23, 2023, due to the Union government’s request for more preparation time and Justice Sanjay Kishan Kaul’s retirement. The Supreme Court, having initiated hearings on these pleas, had postponed proceedings to July 2024.
The outcome of this case holds significant implications for the PMLA’s application and the protection of individual rights. A ruling in favour of providing the ECIR, or copy of grounds of arrest, would enhance the fairness and transparency of PMLA proceedings, ensuring the accused’s right to a fair trial. As the Supreme Court resumes hearings in July, the new bench’s composition and perspectives will be crucial in shaping the final judgement, which could fundamentally impact the legal framework for money laundering investigations in India.
Prakhar Bajpai is a law student at National Law University, Punjab.
