ED Arrest Illegal If Not Based On Well Documented 'Reason To Believe' U/S 19 PMLA: Punjab & Haryana High Court

The Punjab & Haryana High Court has dismissed the plea of an industrialist accused of money laundering, challenging ED arrest, observing that grounds of arrest explicitly reveal and point to the effect that the Arresting Officer had conveyed his intention, reasons, grounds and belief to arrest the petitioner.

Neeraj Saluja was accused of illegally diverting over Rs.1,500 crores from the loan amount for a purpose other than it was sanctioned.

Justice Anoop Chitkara explained, "Any arrest shall be illegal when it directly contradicts the legal requirements mandated by the PMLA, especially under Section 19. This section requires material evidence and a well-documented 'reason to believe' that the individual is involved in money laundering activities. A breach of these requirements signifies a profound legal violation, rendering the arrest void ab initio."

The Court added that the language of Section 19 suggests discretion, however, once an arrest is effected, it must strictly adhere to the outlined statutory requirements. Failure to do so shifts the nature of the action from a permissible discretionary act to a violation of mandatory legal protocols.

The Court elucidated further that, "The concept of 'reason to believe' is not merely procedural but a substantive safeguard that underpins the legality of an arrest under the PMLA. It requires a qualitative assessment of evidence before depriving an individual of liberty."

It highlighted that the lack of a valid 'reason to believe' documented at the time of arrest, as required by Section 19, directly leads to an arrest being classified as illegal rather than a mere irregularity.

The case pertains to alleged illegal diversion Rs.1530.99 crores of the loan amount. An FIR was filed against the industrialist Neeraj Saluja and his family members under Sections 120-B, 403, 420, 467, 468, 471 IPC and 13(2) read with 13(1) (d) of PC Act. On the basis of FIR, ECIR was lodged under 3 & 4 of the Prevention of Money Laundering Act, 2002.

Senior counsel appearing for Saluja argued that the account of the Petitioner's Company was declared as Fraud without adhering to the principles of natural justice and Saluja was suddenly arrested in January, four years after registering of the ECIR.

He further contended that the arrest is illegal as the same violates the mandate of Section 19 of PMLA and Constitutional safeguards under Art. 21 and 22 of the Constitution because the reasons to believe as mandated under the Act were admittedly not provided and the grounds of arrest were a mere reproduction of the CBI Challan.

Senior Counsel appearing for ED argued that there is no consequence, even in Arvind Kejriwal's case for non-supply of Reason to Believe, unlike in Pankaj Bansal where non-compliance about supply written Grounds of Arrest has been held to lead to the release of the person straight away.

After examining the submissions and material available on record, the Court noted that, "In compliance with the statutory mandate of S. 19 of PMLA, the arresting officer at the arrest stage had apprised the petitioner of his reasons of belief and the grounds that necessitated such an arrest."

The Court opined that, the arrest conformed with the requirements of section 19 of the PMLA Act, 2002.

Perusing the arrest memo, the Court said that the safeguards under Section 19 were adhered to, validating the arrest, and there is no failure to entitle the petitioner to be released by exercising the extraordinary powers of the High Court under S. 482 CrPC, 1973.

It pointed that since the plea is not seeking bail, "the petitioner does not have any burden to satisfy the statutory rigors of the twin conditions placed under S. 45 of PMLA, 2002."

"The arrest order dated 18.01.2024 accompanied with grounds of arrest have been annexed... Perusal of the arrest order points out that in the opinion of the Arresting Officer, the petitioner was guilty of the offences mentioned in ECIR and accordingly exercising his statutory powers conferred under Section 19(1) of PMLA, he informed the petitioner about his believe and grounds of arrest and has handed over grounds of arrest at the time of his arrest," the Court added.

The Court clarified that, an arrest made under Section 19 of PMLA Act shall be illegal when it violates Article 22 of the Constitution of India or was made without complying with the statutory requirements of S. 19 PMLA, or no reasons were mentioned for the necessity of such an arrest.

The judge added that, "an illegal arrest, as determined by a breach of the fundamental requirements of Section 19, invalidates the arrest and prevents the possibility of re-arrest based on the same justifications. This is because the violation infringed upon the individual's constitutional rights."

Stating that the perusal of the grounds of arrest explicitly reveal and point to the effect that the Arresting Officer had conveyed his intention, reasons, grounds and believe to arrest the petitioner, the Court held that, "The order of grounds of arrest is in conformity with the requirement of Section 19 of PMLA Act."

"The satisfaction of the concerned Officer is also duly reflected in the wordings and the necessity of arrest and has also clearly revealed. Thus, there is no fault in the grounds of arrest and consequent arrest," the Court opined.

Considering that the massive amount involved, the judge said "that the necessity of the petitioner's arrest was primarily not because of his non-cooperation, not confessing to the guilt, but because of the magnitude of the money laundering of the mammoth proportions."

Title: Neeraj Saluja v. Union of India and another

Mr. Mukul Rohatgi, Senior Advocate (Through VC) Mr. R.S.Rai, Senior Advocate

Mr. Anand Chhibbar, Senior Advocate with Mr. Shikhar Sarin, Advocate,

Ms. Rubina Virmani, Advocate and Mr. Ankur Saigal, Advocate for the petitioner.

Mr. S.V.Raju, Additional Solicitor General of India (Through VC) Mr. Zoheb Hossain, Special counsel, ED , Mr. Lokesh Narang, Senior Panel Counsel,  Harmeet Singh Oberoi, Central Govt. counsel, Samrat Goswami, Central Govt. counsel and Ms. Abhipriya Rai, Central Govt. counsel for the respondent-Enforcement Directorate.

Citation: 2024 LiveLaw (PH) 286

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