India: Power Of Arrest Under The Prevention Of Money Laundering Act, 2002

Last Updated: 4 July 2017
Article by Sonam Mhatre and Sana Khan

Money laundering affects the economic roots of our nation and slows down its development. The Hon'ble Supreme Court of India has observed that the economic offences, having deep rooted conspiracy and involving huge loss of public funds, need to be viewed seriously and considered as grave offences affecting the economy of the country as a whole and thereby posing serious threat to the financial health of the country1. The Prevention of Money Laundering Act, 2002 was enacted with the intention to prevent money laundering and to provide for confiscation of property derived from, or involved in, money laundering and to punish those who commit the offence of money laundering. The Act stipulates that whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money laundering2 which is punishable with rigorous imprisonment of not less than 3 years extending upto 7 years and fine extending upto Rs. 5 lakhs3.

The Act provides for a Special Court under section 43 and also lays down its procedure for arrest and detention of accused. The legislation has clearly set out that the Prevention of Money Laundering Act, 2002 (PMLA) is a special Act dealing with offences stated therein and shall be independent of the provisions of Criminal Procedure Code, 19734.

Recently, Hon'ble Bombay High Court answered questions regarding the legality and vires of the power of arrest under section 19 of the Act in the matter of Chhagan Chandrakant Bhujbal vs. Union of India and Ors5. The Petitioner being former PWD Minister of Maharashtra was accused of generating huge illicit funds to the tune of Rs.840.16 crores that were money laundered. While holding official position as the PWD Minister, the Petitioner allegedly awarded contracts of public works for self gains. As per the provisions laid down in the PMLA, 2002 the Petitioner was arrested and the Special Court took cognizance of the offence and passed a detailed Order sending him to custody. The Petitioner moved the Hon'ble Bombay High Court under Article 226 of the Constitution of India seeking Writ of Habeas Corpus on the following grounds:

  1. The amendment of Section 45 of the Prevention of Money Laundering Act in 2005 made all offences under the Act non-cognizable and therefore procedure under section 155 (2) of the Criminal Procedure Code should have been followed. Unless cognizance of the offence is taken by the Magistrate or the Special Court, the arrest of the Petitioner could not have been effected. Therefore, requisite procedure for arrest of the Petitioner was not followed.
  2. The grounds of arrest were not mentioned in writing in the Arrest Warrant.
  3. The Assistant Director, being an authority established under section 48(c) of the Prevention of Money Laundering Act, without any notification issued by Central Government under section 49(3) imposing any conditions or limitations on his powers, cannot be held as 'competent' to exercise its powers under section 19 of the Act. Therefore, the Assistant Director, Directorate of Enforcement were not competent and had no authority to arrest the Petitioner.

While dismissing the Writ Petition, Division bench of the Hon'ble Bombay High Court held that the Assistant Director's power to arrest under section 19 does not depend upon the question as to whether offence is cognizable or non-cognizable. It was pertinently noted that while amending section 45 of the Act, the Legislature had not changed the heading, thereby giving clear indication that it did not intend to make the offence "non-cognizable" but only wanted to clear the conflict between the power of the Police Officer, who can arrest, in cognizable offence, without warrant and the authority established under Section 19 of the PML Act, who can arrest on conditions being satisfied, as laid down in the Act. The Hon'ble Court further noted that the offence of money laundering punishable under section 4 read with section 3 of the PMLA is punishable with rigorous imprisonment for more than three years and which may extend upto seven years or even upto ten years, as the case may be. Therefore, in view of Part II of the First Schedule of the Criminal Procedure Code, the said offence becomes cognizable.

It was further held that Section 19 of the PMLA does not contemplate either registration of FIR, on receipt of information relating to cognizable offence or of obtaining permission of the Magistrate in case of non-cognizable offence before taking cognizance or before effecting arrest of the accused in respect of any offence punishable under this Act. The only conditions, which are laid down under Section 19 of the Act, pertain to the reasonable belief of the authority, which is on the basis of the material in its possession.

Further, sections 48 and 49 of the PMLA give the officers of the Directorate of Enforcement powers to investigate cases of money laundering. The enlisted officers6 have also been authorised to arrest and initiate proceedings for attachment of property and to launch prosecution in the designated Special Court for the offence of money laundering. It was held that the law is well settled that the definition given in the Rules7 must be read in conformity with the provisions of Section 19 of PML Act and hence appropriate interpretation would be that as far as Directors, Deputy Directors and Assistant Directors are concerned, no authorization of the Central Government is required; whereas, in respect of other officers, such authorization may be necessary. Therefore, it was held that the Assistant Director was a competent authority to arrest the Petitioner.

It was noted that whatever grievances raised by the Petitioner in this Petition to challenge his arrest as illegal were not raised before the Special Court, either at the time of first remand or thereafter from time to time when he was remanded. Also, the Remand Report and the order of remand passed by the Special Court clearly state which offence is made out against the Petitioner and on the basis of which material. Therefore, in no way, it can be said that the impugned order of remand, which validated custody of the Petitioner on his alleged illegal arrest, suffers from any illegality.

On the basic rule that a Writ of Habeas Corpus cannot be granted when a person is committed to jail custody by the competent Court by an order, which, prima facie, does not appear to be without jurisdiction or wholly illegal8, the Petitioner's plea was dismissed. This Order has made it crystal clear that the Amendment of 2005 does not pronounce the offences under Prevention of Money Laundering Act, 2002 as non - cognizable.

Footnotes

1. T Y.S. Jagan Mohan Reddy Vs. Central Bureau of Investigation, (2013) 7 SCC 439

2. Section 3 of Prevention of Money Laundering Act 2002

3. Section 4 of Prevention of Money Laundering Act 2002

4. Section 65 of Prevention of Money Laundering Act 2002

5. [2017] 78 taxmann.com 143 (Bombay)

6. Director, Deputy Director, Assistant Director, or any other officer authorised in this behalf by the Central Government by general or special order

7. Prevention of Money Laundering (the Forms and the Manner of Forwarding a Copy of Order of Arrest of a Person along with the Material to the Adjudicating Authority and its Period of Retention) Rules, 2005

8. Kanu Sanyal Vs. District Magistrate, Darjeeling & Ors., (1974) 4 SCC 141

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