‘PMLA Abused Enough; Govts Toppled On Basis Of ED’, Says Kapil Sibal In Senthil Balaji Case; Solicitor General Objects To 'Political Arguments'

The senior counsel told a bench of Justices AS Bopanna and MM Sundresh:

“What I am worried about is that the Prevention of Money Laundering Act has been used and abused enough. My worry is that. We stand here for our clients, who may win, or lose. But, the more important thing is the future of India in terms of the powers of the Enforcement Directorate, which has come into question. This is not straightforward.”

“Please confine yourselves to the facts and the law,” Solicitor-General Tushar Mehta sharply interjected in response to Sibal’s comment, before deprecating ‘emotive and political arguments’. The law officer added, “I have demonstrated that since 2002, when the act came into force, the total number of arrests by the Enforcement Directorate has not exceeded 300.”

Sibal shot back, “I have not made this political. But if he wants to make it political, then I must ask, what about the governments that have been toppled on the basis of the ED?”

“There is also a two years’ sentence on any person making any wrongful arrest,” Mehta continued, referring to Section 62 of the Prevention of Money Laundering Act, 2002, which lays down that any authority or officer who without reasons recorded in writing, either conducts a search of any property or detains, searches, or arrests any person may be handed a prison sentence of a maximum period of two years for such wrongful search, detention, or arrest.

“Oh I see,” Sibal  retorted, before asking, “Who, in this country, is ever sentenced?”

Mehta attempted, “If there is a wrong arrest…”

“There is never a wrong arrest,” Sibal exclaimed.

“Let us get back to the legal problem,” Justice Bopanna intervened.

Sibal, appearing for the embattled legislator, reiterated today that the Enforcement Directorate seeking police remand was illegal inasmuch as they were not ‘police officers’ under the Prevention of Money Laundering Act, as per the decision of the Supreme Court in the 2022 Vijay Madanlal Choudhary judgement. He stressed that the Prevention of Money Laundering Act did not even confer on the officers of this agency, the powers of an officer in charge of a police station, unlike other regulatory statutes like the Customs Act, 1962, and the Foreign Exchange Regulation Act, 1973. He told the bench:

“If FERA and customs officers cannot seek police remand, despite fact that they are conferred with the powers of an officer in charge of police station, in the absence of even this provision, how can it be said that ED officers have the power to seek police remand? There is nothing different under the PMLA. This act even excludes officers’ status as officers in charge of police stations. This act also makes it amply clear that the only procedure to be followed is the procedure prescribed in concerned sections.”

Sibal also expressed his surprise over the Centre placing its reliance on a 1993 judgement of the Supreme Court in the Deepak Mahajan case, saying, “I do not understand…This judgement is in my favour because it says that Section 167 of the Code of Criminal Procedure, 1973, in truncated form, will apply. There can be no police remand, because the first part of Section 167 will not apply.” He also repeated his submission from the previous day of hearing that the Vijay Madanlal Choudhary dictum placed a bar on the officers of the Enforcement Directorate from seeking police remand insofar as an ‘investigation’ under the governing statute is interpreted to be an ‘inquiry’ for the purposes of the act, and the officers are held to not be police officers. Section 167 of the Code cannot apply ‘wholesale’ to the Prevention of Money Laundering Act, the senior counsel insisted.

He called into question the power of the ED to take Balaji into custody by asking:

“In light of the judgements of this court in Vijay Madanlal Choudhary, and Deepak Mahajan, in view of the specific provision existing in the Customs Act and FERA, and keeping in mind that the inquiry is complete in this case, under what provision of the law, either under the PMLA or otherwise, will the Enforcement Directorate seek police remand?”

Sibal also told the bench that for the Enforcement Directorate’s contention to be accepted, its officers would have to be deemed to be in charge of police stations, before quickly outlining how that path would be fraught with challenges. Not only would it entail reading into a statute a provision that does not exist, but also if such a deeming fiction were to be created and ED officers considered to be officers in charge of police stations, there would be a ‘serious problem’ because of the inconsistencies between the provisions of the Code of Criminal Procedure, 1973 and the Prevention of Money Laundering Act, 2002. Sibal explained that Section 167 would apply in a ‘truncated’ form only after a person is produced before the magistrate who then takes cognizance, and ‘custody’ within the meaning of Section 167 of the code would only mean judicial custody:

“When the Code of Criminal Procedure was enacted, other special statutes such as the PMLA were not there. When ‘such custody’ was used in Section 167, it was used it in the code’s context. Same with the provision dealing with arrest, or arrest on the basis of suspicion contemplated under Section 161. All these provisions do not apply. The code only starts applying after a person is produced before a magistrate…Therefore, the issue here is over the continued detention of the accused. My submission is that such continued detention, under the scheme of the Prevention of Money Laundering Act, cannot be by the police.”

“We stand here, quite frankly, de hors our client,” Sibal exclaimed.

Justice Bopanna replied, “That is the trust with which the court hears this matter as well. Because ultimately, we will get the correct position of law...” 

“Ultimately, any interpretation must stand the test of the future. The future is more important than the present. But the future can never be tailor-made. The present is tailor-made, but the future can never be,” Sibal told the bench before concluding for the day.

Background

In June, DMK leader V Senthil Balaji and cabinet minister in the MK Stalin-led Tamil Nadu government was arrested by the Enforcement Directorate for his alleged role in a cash-for-job scam in the state, which is believed to have taken place between 2011-2016 during his tenure as the transportation minister under the then-AIADMK regime. This development came after the Supreme Court in May set aside a direction of the Madras High Court staying the proceedings in the money laundering case lodged by the Enforcement Directorate, effectively removing all fetters to the ED investigation. The top court also gave a nod to the agency to include the offences under the Prevention of Corruption Act in the investigation.

In the same month, the Madras High Court denied interim bail to Balaji but allowed his family’s request to transfer him to a private hospital. Balaji was arrested by the central agency after an 18-hour-long extensive search and interrogation conducted at his official residence, his official chamber at the state secretariat and his brother’s residence. After the minister’s arrest, his wife filed a habeas corpus petition before the high court praying, inter alia, that the legislator be allowed to be shifted to a private hospital to undergo medical treatment.

The Enforcement Directorate challenged the high court agreeing to take the petition on board and passing an interim order before the Supreme Court, arguing that it was not maintainable. But a vacation bench of the top court adjourned the hearing in the central agency’s plea, choosing to wait for the high court to deliver its verdict first.

However, earlier in July, the high court delivered a split verdict. On the one hand, Justice Nisha Banu observed that the habeas corpus petition filed by Balaji’s family was maintainable since, inter alia, the ED officers did not have the powers of a station house officer under the Prevention of Money Laundering Act, and as such, could not have moved for the custody of the minister. On the other hand, Justice Bharatha Chakravarthy held that Balaji's arrest did not amount to illegal detention, observing not only that the ED officers were competent to seek custody, but also that Balaji’s family had not made out a case of illegal custody or a mechanical remand order, which would have warranted the interference of the high court by way of a habeas corpus petition.

Hours after this verdict, the State sought to convince the top court to hear the appeals and finally decide the matter. However, a bench headed by Justice Surya Kant refused to heed the request of the central agency to decide the questions of law involved in the case and opted to continue waiting for the outcome of the litigation pending before the high court, as it had done earlier. However, the Supreme Court requested the Madras High Court Chief Justice to place the habeas corpus petition filed by Senthil Balaji's wife Megala before a larger bench at the earliest for an expeditious decision.

Following this split verdict, Justice CV Karthikeyan, who was assigned by the chief justice to resolve the split decision in this habeas corpus petition, has settled the conflicting views by holding that the central agency was entitled to seek the custody of the minister in a money laundering case over an alleged cash-for-jobs scam in the state. Endorsing the view of Justice Chakravarthy, Justice Karthikeyan held that while officers of the Enforcement Directorate were not police officers, they were competent to take an accused into custody for further investigation and this right of the agency to take Senthil Balaji could not be denied.

After this, the Tamil Nadu minister moved the Supreme Court in appeal against the high court’s verdict, inter alia, challenging the Enforcement Directorate’s power to seek custody of an accused in the absence of a specific provision under the Prevention of Money Laundering Act, 2002. His wife, Megala, also filed an appeal against the Madras High Court’s decision.

Last week, the Supreme Court issued notice in the batch of pleas over Senthil Balaji’s arrest. In view of this, yesterday, the high court division bench of Justices Banu and Chakravarthy decided to close the proceedings in the habeas corpus petition pending before it, without recording any observation regarding the starting date of the minister’s custody.

On the first day of the hearing, Senior Advocate Kapil Sibal argued that that power to make an arrest under Prevention of Money Laundering Act could not be conflated with the power to seek police remand, and the Enforcement Directorate’s custody of the minister flew in the face of the 2022 judgement of the Supreme Court in Vijay Madanlal. He asked:

“The investigation by the Enforcement Directorate is an inquiry for the purposes of the Prevention of Money Laundering Act. In other words, the ED officers conduct inquiries, gather evidence, and make arrests once a conclusion of guilt is reached before filing a complaint. All statements recorded during this inquiry are admissible. Now, in this context, the question arises: If ED officers are neither police officers, nor officers in charge of a police station, and the ‘investigation’ is in the nature of an inquiry, then under what power will they seek police remand?”

Case Details

1. Megala v. The State | Special Leave Petition (Criminal) No. 8652-8653 of 2023
2. V Senthil Balaji v. The State | Diary No. 28176 of 2023
3. Directorate of Enforcement & Anr. v. Megala | Special Leave Petition (Criminal) No. 8750 of 2023