Prevention of Money Laundering Act 2002

Recently, the Supreme Court granted interim bail to Arvind Kejriwal in the case brought by the Enforcement Directorate (ED) in the alleged Delhi excise policy scam.

• The SC raised some crucial concerns about the ED’s use of its arrest power under Section 19 of the Prevention of Money Laundering Act, 2002 (PMLA) and referred the matter to a larger bench.

What is Section 19 of the PMLA?

• Section 19 of the PMLA deals with the power to arrest. 
• Section 19(1): It states that if the ED Director “has on the basis of material in his possession, reason to believe (that reason for such belief to be recorded in writing) that any person has been guilty of an offence punishable under this Act, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.”

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Concern with Section 19 (1) of Prevention of Money Laundering Act 2002

• In the above case, the ED has buttressed the words “reason to believe” in Section 19, arguing that the Director may not go into the materials but has reason to believe, which is subjective and varies during the investigation.
• PMLA vs. Ordinary Law: PMLA departs from ordinary criminal law. The threshold is lower in ordinary law, and obtaining bail is easier.
  • Under Section 41 of the CrPC, police can arrest without a warrant based on “reasonable suspicion” of committing a cognizable offence.
• Condition for Bail Under PMLA: The bar for bail under PMLA, which imposes a reverse burden of proof — which means that instead of the prosecution having to prove their accusation, it is the accused who must prove their innocence — too, is different from ordinary criminal law
• Supreme Court’s Stand: Section 19(1) of the PML Act requires the designated officer to form an opinion of guilt based on admissible evidence, not merely possessing evidence. This opinion must be supported by material that would stand in court, emphasising the need for admissible evidence to establish guilt.

Legal Position on Bail Provision of the PMLA

• Constitutional Challenge: In Nikesh Tarachand Shah vs. Union of India (2018), the bail provision of the PMLA Act was deemed unconstitutional because it violated Articles 14 and 21.
• Parliamentary Restoration: Subsequently, Parliament restored the bail provision through amendments.
• Judicial Upholding: The SC, in the landmark Vijay Madanlal Chaudhary ruling in 2022, upheld the constitutional validity of the Section 19  ruling, which was reasonable and aligned with the objectives of the PMLA Act.
  • Although it did not specifically address the necessity of arrest and the standard of evidence (proportionality aspects) required to arrest, the SC ruled that the vast power to arrest itself is not unconstitutional.
  • One of the grounds on which the SC upheld the stringent bail provisions was that the power to arrest is also narrow compared to ordinary law.
• Legislative Discretion: The Court affirmed that including specific offences in the schedule falls within the purview of legislative policy.

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