The Hon’ble Supreme Court, in Tarsem Lal v. Directorate of Enforcement, has laid down the law in relation to the powers of Special Court and Enforcement Directorate once a complaint is filed under Section 44(1)(b) of Prevention of Money Laundering Act, 2002 (“PMLA”). The judgment delivered on May 16, 2024, differentiated the rights of an accused who has not been arrested by ED under Section 19 of PMLA at the stage of investigation.

For ease of reference, the term “Accused” used in this article refers specifically to an Accused who has been named in the complaint but was not arrested by the Enforcement Directorate (“ED”) during the course of investigation.

Key Takeaways:

• The judgment creates a distinction between a person who was not arrested during investigation and a person who was arrested. The judgment recognizes the fact that right to life and liberty of a person who has not been arrested during the course of investigation cannot be subjected to the twin test described under Section 45(1) of PMLA.
• Based on a reading of the judgment, it can also be argued that the twin test may not apply to such of the Accused who are arrested by ED after seeking the leave of the Special Court.
• The judgment of the Hon’ble Supreme Court comes as a welcome relief to all the Accused who have obtained bail in pending proceedings and have been put to stringent conditions such as deposit of passport, restriction on travel beyond the jurisdiction of the Special Court and such other adverse conditions. Basis this judgment, such Accused can now seek revocation of all those conditions and to declare the proceedings for grant of bail as nullity, since the law as clarified by the Supreme Court means that the Accused were never required to apply for bail in the first place. At best, in order to secure their presence during trial, the Special Court can call upon the Accused to execute a bond under Section 88 of Cr.PC.
• The judgment also safeguards an Accused against coercive steps by the Special Court like issuance of non-bailable warrants or arrest warrant at the first instance.

Summary of findings by the Supreme Court:

• It has been held that the Special Court should issue summons only upon being satisfied that the complaint filed by ED prima facie discloses commission of the alleged offence. The Special Court has the power to reject the complaint even before the issuance of summons if the complaint does not prima facie disclose commission of the alleged offence. This process which is provided for under Sections 200 to 204 of Code of Criminal Procedure, 1973 (“PC”), has been held to be applicable to a complaint filed by ED under Section 44(1)(b) of PMLA.
• While relying on the judgment of Inder Mohan Goswami & Anr v. State of Uttaranchal & Ors.^[1], the Hon’ble Supreme Court held that in a complaint case, service of summons along with a copy of the complaint should be the Special Court’s first resort. However, if the Accused is charged with a heinous crime and it is feared that he is likely to tamper with or destroy evidence or evade the process of law, this rule may not apply.
• If the Accused avoids service of summons, a bailable warrant should be issued. Only if the Accused continues to avoid service of summons, even after issuance of the bailable warrant, the Special Court should resort to issuance of non-bailable warrant.
• It has been held that appearance of an Accused upon service of summons is sufficient compliance with summons and the question of taking such Accused into custody upon his appearance does not arise.
• It has also been held that Section 437(1) of Cr.PC, which requires an accused to seek bail upon his appearance before a Court, is not applicable to proceedings before the Special Court. Therefore, there is no requirement for an Accused to seek bail when he appears before the Special Court upon service of summons.
• The only course open to the Special Court to secure the presence of an Accused is to direct such Accused to execute a bond under Section 88 of Cr.PC, which is a discretionary power.
• An order under Section 88 of Cr.PC is not akin to an order granting bail and therefore, the twin test envisaged under Section 45(1) of PMLA does not apply. A bond under Section 88 of Cr.PC is distinct from a bail bond.
• In cases where the Accused not having executed a bond, absents himself from proceedings before the Special Court, the Special Court may issue a warrant for his arrest under Section 70 of Cr.PC.
• In case of a bailable warrant, an Accused is entitled to be enlarged on bail as a matter of right. In case of a non-bailable warrant, upon his appearance before the Special Court, an Accused may apply for cancellation of such warrant. Considering the fact that the Accused was not taken into custody during investigation, the Special Court will cancel the warrant without taking such Accused into custody, provided the Accused provides an undertaking to appear regularly before the Special Court.
• It was further held that the twin test envisaged under Section 45(1) of PMLA will not apply to cancellation of a warrant issued either under Section 89 or under Section 70 of Cr.PC.
• Once the Special Court takes cognizance of the complaint, ED is powerless to arrest an Accused under Section 19 of PMLA.
• If ED wants custody of an Accused after Special Court takes cognizance, ED shall apply to Special Court seeking custody. The Special Court must satisfy itself by recording reasons that custodial interrogation of the Accused is required while allowing such an application.

[1] (2007) 12 SCC 1