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In the Supreme Court of India Pankaj Bansal  Versus Union of India  

Case Comment, Publications

Criminal Appellate Jurisdiction

Criminal Appeal Nos. 3051-3052 of 2023

Pankaj Bansal                                                                           …Appellant

Versus

Union of India                                                                             …Respondent

FACTS OF THE CASE

  1. Pankaj Bansal and Basant Bansal were directors of Real Estate Company called M3M Group. They got arrested by Enforcement Directorate (ED) in a case of money laundering under the Prevention of Money Laundering Act 2002 (PMLA).
  2. This case was connected to a Real Estate Investment Firm called the IREO Group. This firm was already under investigation for certain offence which was financial fraud, misappropriation of funds, and illegal diversion of large sums of money to international accounts.
  3. An investigation was initiated by the Enforcement Directorate, alleging the fraudulent activities by IREO where they found that the company had collected huge investments from the buyers and financial institutions but failed to complete their real estate projects.
  4. Several complaints were lodged against the IREO Group, alleging that the company was engaged in financial irregularities, defaulted on payments, and laundered money through different transactions.
  5. The investigation of the ED revealed that the M3M Group had financial dealing with IREO and allegedly facilitated money laundering through benami property transactions, undervalued sales, and illegal fund transfers.
  6. On the premises of both, M3M and IREO, ED conducted raids which uncovered substantial evidence alleging the linking of two companies in a broader financial scam.
  7. The ED suspected that M3M received payments from the IREO and helped in diverting illicit funds, using real estate transactions and shell companies to launder money.
  8. ED arrested Pankaj Bansal and Basant Bansal on June 14, 2023, under section 19 of the PMLA 2002 on allegations of money laundering and financial misconduct.
  9. The ED did not provide written reasons or the grounds for arrest, which is a mandatory requirement under section 19 of PMLA 2002. They were just orally informed about the arrest, which led to a legal challenge.
  10. The Bansals argued that their arrest was illegal and arbitrary; at it violated their fundamental right under Article 22(1) of the Constitution of India, which states that every arrested person has the right to be informed of the reasons of their arrest. So, they filed a petition before the Supreme Court, challenging the legality of their arrest and seeking relief on the grounds that the ED had not followed due process under the law.

ISSUES RAISED 

  1. Whether the Enforcement Directorate (ED) is legally required to provide written grounds for arrest under Section 19 of the Prevention of Money Laundering Act, 2002 (PMLA).
  2. Whether the failure to provide written reasons for arrest violates Article 22(1) of the Indian Constitution.
  3. Whether non-compliance with procedural safeguards under PMLA makes an arrest illegal.
  4. Whether the ED’s broad powers under PMLA should be subjected to stricter judicial scrutiny to prevent arbitrary arrests.
  5. Whether procedural fairness in financial crime investigations must be upheld to protect individual rights.

CONTENTION

     The petitioners:

  1. The petitioners argued that the ED failed to provide written reasons for their arrest which violated the Article 22(1) of the Constitution, which mandates that an arrested person has the right to be, informed the grounds for their detention.
  2. The accused was only orally informed about it, which was claimed as insufficient and denied constitutional protection and the right to seek legal remedy.
  3. Section 19 of PMLA 2002 requires that the grounds for arrest should be recorded in writing and communicated to the accused. The petitioners contented that since no written reasons were give, the arrest was illegal and void.
  4. The ED had allegedly exercised its excessive power, arresting the accused without transparency and procedural fairness, which made the arrest arbitrary and unlawful.
  5. The petitioners claimed that the lack of written reasons prevented them from effectively challenging their detention, violating the principles of natural justice.
  6. They relied on many previous judgements which direct strict compliance with procedural safeguards in arrest as there was failure to follow mandatory procedures of arrest by the ED.

           The respondents:

  1. ED argued that section 19 of PMLA doesn’t mandate that grounds of arrest are to be provided in writing at the time of the arrest and the oral communication was sufficient.
  2. They also argued that under the act there are certain provisions where the investigative agencies have broad discretionary powers to arrest individuals suspected of money laundering, etc.
  3. ED claimed that the arrest was based on sufficient evidence linking to the accused to financial misconduct and money laundering transactions.
  4. Contentions of government were given that Article 22(1) doesn’t explicitly require the communication of the arrest. 

RATIONALE 

  1. The Supreme Court insisted on the existence of procedural safeguards in any arrest carried out under the PMLA 2002 so as to reduce the arbitrariness of the action taken by the investigating agencies. It further held that any arrest under Section 19 of the PMLA must be based on written grounds, communicated to the accused. This is not an internal requirement for the Enforcement Directorate (ED), but a substantive right of the person arrested.
  2. Citing the case of D.K. Basu v. State of West Bengal (1997) and Arnab Goswami v. State of Maharashtra (2021), the Court observed that the lack of communication of written grounds for arrests stands as a violation of the fundamental rights under Articles 21 and 22 of the Constitution, thereby putting injustice and arbitrariness in action. Also the case 

Maneka Gandhi v. Union of India (1978) and Joginder Kumar v. State of UP (1994), confirming that restrictions on personal liberty must, in all cases, be just, fair, and be based on actionable grounds. 

  1. The Court rejected the submission of the ED that the reasons for arrest were sufficiently communicated orally, emphasizing that if no written reasons were given to the accused, he had no chance to pursue immediate legal recourse, be it for bail or a writ petition. They maintained that while financial crime cases require stricter enforcement, constitutional safeguards cannot be brushed aside. Due process, in turn, will guarantee accountability, transparency, and fairness in the investigations. 
  2. The ruling acts as a vital precedent in law by declaring that all future arrests under the PMLA must follow procedural safeguards in order to prevent arbitrary detention, thereby maintaining the rule of law.

JUDGEMENT

  • The Supreme Court dismissed arrests made under Prevention of Money Laundering Act unless the process was followed with procedural safeguards. Highlighting Section 19, the Court asserted that written reasons for an arrest must be provided and communicated. The failure to provide written reasons was said to violate constitutional rights under Articles 21 and 22, as it interferes with the ability of the accused to move for bail or initiate the challenge against his detention. The Court rejected the Enforcement Directorate’s (ED) argument that oral reasons were sufficient, reiterating that due process against arbitrary arrest should be maintained. The Court, while on one hand voicing the need for rigorous enforcement against money laundering, emphasized that on the other hand, constitutional safeguards cannot be compromised. Thus, it quashes the arrest of the petitioners and rules that subsequent arrests under PMLA shall be mandatory with the delivery of written reasons at the time or immediately after the arrest. This judgment creates an important precedent, enhancing transparency, accountability, and the rule of law in financial crime investigations.

DEFECTS OF LAW

  1. The most important defects in PMLA are clear sections under which arrest is made at Section 19, enabling ED to arrest persons without the minister at the time of arrest carrying a clear mandate of written reasons for arrest. This vagueness amounts to arbitrary detainment against Articles 21 and 22 of the Constitution. The PMLA does not have such a safeguard, which gives the ED unfettered discretionary power to its advantage that CrPC has without having to communicate the reasons for arrest in writing.
  2. Moreover, under Section 45, bail is also very difficult to obtain as the accused must reverse the burden of proof. This, along with the vague arrest procedures, leads to prolonged detention without trial. Further, similar to UAPA, there is no prior judicial approval for arrests, making the provisions in PMLA vulnerable to misuse and political favoritism.
  3. The ED functions directly under the executive, importing selective targeting and evasion of judicial oversight. Besides, arrest procedures of PMLA are not in conformity with international human rights law instruments like ICCPR, which require that at the very latest, an accused be informed immediately of the reasons for detention. Among some of the remedies that the Supreme Court has provided to relieve this defect in the case of Pankaj Bansal vs. Union of India is that written reasons must be provided for detainment. This has been seen to help bring in increased transparency and accountability. More amendments need to be incorporated to the legislation so as to fully uphold constitutional safeguards

INFERENCE

  • Section 19 is vague while the absence of compulsion towards writing grounds for arrest renders PMLA susceptible to misuse and arbitrary application with obstacles to bail and powers of discretion that the ED has excessively. The Supreme Court ruling in Pankaj Bansal vs. Union of India addressed some of the above defects by requiring that there must be written reasons provided for the arrest of the accused thus making the conduct of financial crime investigations more credible, transparent, and accountable. Yet much need for legislative amendments is still there to make it more constitutional and in line with international legal standards.

Name: D. Khushi Jain

Semester & Year: 5th Year 10th semester

College: Dr. B. R. Ambedkar Law College, Hyderabad