The story so far: In a major setback to Tamil Nadu Minister V. Senthilbalaji, the Madras High Court on July 14 upheld the legality of his arrest by the Enforcement Directorate (ED) and his subsequent remand in judicial custody in a money-laundering case linked to a cash-for-jobs scam.
Justice C.V. Karthikeyan delivered the ruling on a habeas corpus petition filed by Mr. Balaji’s wife for his release following a split verdict by a Division Bench of the High Court on July 4. While Justice J. Nisha Banu allowed the petition, declared the Minister’s detention to be illegal, and consequently ordered his release, Justice D. Bharatha Chakravarthy disagreed with the conclusions as well as reasons given by the senior judge on the Bench. Accordingly, he dismissed the petition and held it to not be maintainable.
Within hours of the pronouncement of the diametrically opposite verdicts, the ED approached the Supreme Court to immediately transfer and decide the question of the Minister’s custody. However, a Bench of Justices Surya Kant and Dipankar Datta refused to entertain the plea and instead ordered the matter to be placed before High Court Chief Justice S.V. Gangapurwala to name a third judge who will hear the case afresh, and whose decision will finally tilt the verdict by a majority of 2:1.
Subsequently, the Chief Justice appointed Justice Karthikeyan to determine the legitimacy of the Minister’s arrest. Agreeing with the findings of Justice Chakravarthy, the judge ruled that the ED can subject any person accused in a case booked under the Prevention of Money Laundering Act (PMLA), 2002, to custodial interrogation and that the Minister can be taken into custody even after the expiry of 15 days from his arrest on June 14.
He also directed the High Court Registry to list the matter again before the same Division Bench, with the consent of the Chief Justice, for formal closure of the case as well as to decide the day from which the ED would be entitled to take the Minister into custody.
On Tuesday, Mr. Balaji and his wife moved the Supreme Court to challenge the High Court verdict upholding his arrest. He was shifted to the Puzhal Central Prison on Monday after being discharged from a private hospital.
A bench comprising Justices A.S Bopanna and M.M Sundresh is set to hear this crucial appeal on July 21. In light of this development, we revisit some of the key cases where the Court laid down the ambit of powers conferred to the ED to arrest and seek custody of an accused.
What did the High Court rule?
Justice Karthikeyan had framed three questions on the points of differences between the two judges of the Division Bench. The question central to the debate was whether the ED has the power to seek custody of a person arrested.
The judge accepted senior advocate Kapil Sibal’s argument on behalf of the petitioner that ED officials are not police officers as per the law laid down by the Supreme Court in Vijay Madanlal Choudhary v. Union of India (2022). However, he noted that the sessions judge remanded Balaji to judicial custody as per Section 167 of the Code of Criminal Procedure (CrPC) owing to which the nomenclature of ‘detenue’ subsequently changed to ‘accused’. It was further highlighted that Section 167(2) CrPC enables the remand of an accused to ‘such custody as the Magistrate thinks fit’ during the first fifteen days and does not specify whether it has to be ‘police custody’ or ‘judicial custody’.
It was also observed that the Court designated ED officials to not be police officers only for the reason that the statements given to the latter in any criminal case would not be admissible in evidence before the trial court under the CrPC, whereas statements given to the former were admissible in evidence under the PMLA.
Therefore, this observation could not be stretched to the extent of denying them an opportunity to investigate the offence of money laundering effectively and subjecting the accused to custodial interrogation for unearthing crucial facts related to the alleged crime, the judge added.
Justice Karthikeyan also emphasised that the ED could not be left without remedy when it had not been able to subject the Minister to custodial interrogation since he was arrested because he was admitted to a government hospital and then shifted to a private hospital on the basis of interim orders passed by the Division Bench on June 15.
The Court also took into consideration the Supreme Court’s ruling in Y. Balaji v. Karthik Desai (2023) where the Court refused to discharge Mr. Balaji in the cash-for-jobs scam in May this year by outlining that when the accused and the complainant arrived at a compromise, they also compromised on ‘justice, fair-play, good conscience and the fundamental principles of criminal jurisprudence.’
Referring to these adverse observations, the judge added, ‘The Supreme Court’s observations are very telling. They go to the root of the matter to show why the June 13 search was conducted by ED. This Supreme Court judgment was not pointed out before the division bench by either side. I will be failing in my duty if I didn’t examine this judgment as that is what led to the ED proceedings.’
What has the Supreme Court held in the past?
In its landmark 2022 ruling Vijay Madanlal Choudhary v. Union of India, the Supreme Court upheld various provisions of the PMLA which relate to the powers of arrest, attachment, search, and seizure conferred upon the ED. The court was of the opinion that all the provisions under PMLA have a reasonable nexus with the objects sought to be achieved by the Act to prevent money-laundering effectively.
Notably, while upholding Section 50 of the PMLA, the Court said that the process envisaged by section 50 is in the nature of an inquiry against the proceeds of crime and is not an ‘investigation’ in the strict sense of the term for initiating prosecution, and therefore ED officials under the PMLA are not police officers.
The court added, ‘The purposes and objects of the 2002 Act... is not limited to punishment for offence of money- laundering, but also to provide measures for prevention of money- laundering. It is also to provide for attachment of proceeds of crime, which are likely to be concealed, transferred, or dealt with in any manner which may result in frustrating any proceeding relating to the confiscation of such proceeds under the 2002 Act. This Act is also to compel the banking companies, financial institutions, and intermediaries to maintain records of the transactions and to furnish information of such transactions within the prescribed time in terms of Chapter IV of the 2002 Act. Considering the above, it is unfathomable as to how the authorities referred to in Section 48 can be described as police officer.’
Placing reliance on this judgment, Justice J. Nisha Banu in the split verdict ruled that since the officers under the PMLA are not given powers of a police officer, they could not seek police custody. She noted that the officers empowered to arrest under Section 19 of the PMLA are required to produce the accused to the competent court within 24 hours of arrest and can only seek judicial remand. ‘It appears that the Parliament in its wisdom did not see the need for custodial interrogation for proceedings under PMLA, 2002 beyond the first 24 hours of arrest,’ the judge added.
On the other hand, Justice Chakravarthy opined that when Section 65 of the PMLA expressly makes it clear that the provisions of the CrPC relating to investigation will apply to PMLA, then Section 167 CrPC, should be applicable mutatis mutandis (making necessary changes without altering essence) and that the word ‘police’ has to be read as Investigating Agency or the Enforcement Directorate.
No detention in police custody beyond 15 days from date of arrest
In Central Bureau of Investigation v. Anupam J. Kulkarni (1992), the Supreme Court laid down the law that no police custody can be allowed beyond the first 15 days from the date of arrest; any further remand during investigation can only be in judicial custody.
“There cannot be any detention in the police custody after the expiry of first fifteen days even in a case where some more offences either serious or otherwise committed by him in the same transaction come to light at a later stage. But this bar does not apply if the same arrested accused is involved in a different case arising out of a different transaction,” the judgment reads.
However, in April this year, a Supreme Court bench comprising Justices MR Shah and CT Ravikumar observed that this 1992 decision requires reconsideration. The bench reasoned that at present the remand period can get over by the time a higher court sets aside an incorrect decision denying custody.
Money laundering is an independent offence; if arrest is possible then seeking custody for further investigation is permissible
In the Supreme Court’s 2022 ruling in Dr. Manik Bhattacharya v. Ramesh Malik, the court observed that interim protection granted against CBI action cannot operate against the ED even if the underlying allegations are similar.
“...we do not think a general protective order directed at another investigating agency could have insulated the petitioner from any coercive action in another proceeding stated by a different agency, even if there are factual similarities vis-à-vis the allegations,” the court underscored.
Placing reliance on this decision, Justice Karthikeyan ruled in the impugned verdict that money laundering is an independent offence and that arrest is a step in the investigation; therefore when arrest is possible then seeking custody for further investigation is also permissible.
Interference of court in an investigation into a cognisable offence must be limited
In P. Chidambaram v. Directorate of Enforcement (2019), the Supreme Court rejected a prayer for anticipatory bail with respect to an offence of money laundering and proceeded to grant custody to the ED. The court reasoned that in a case of money laundering which involves many stages of placement and layering of funds, a ‘systematic and analysed’ investigation is required which would be frustrated if pre-arrest bail is granted.
The court also cautioned that it must only exercise its inherent powers under Section 482 CrPC to interfere in an investigation into a cognisable offence if it is convinced that the power of the investigating officer is exercised mala fide or where there is an abuse of power and non-compliance with of the provisions of the CrPC.
“If the court is to interfere in each and every stage of the investigation and the interrogation of the accused, it would affect the normal course of investigation. It must be left to the investigating agency to proceed in its own manner in interrogation of the accused, nature of questions put to him and the manner of interrogation of the accused,” the court added.
