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2025 (2) TMI 267 - HC - Money LaunderingLegality of arrest of Petitioner - violation of Section 19 of the PMLA and Article 21 of the Constitution of India - Money Laundering - illegal mining of sand and selling the same without issuance of transit challans - proceeds of crime - scheduled offence or not - reason to believe - HELD THAT - The term reason to believe cannot be equated with the term reasonable complaint or credible information or reasonable suspicion contained in Section 41 (1) (B) of the Cr.P.C. Reason to believe is the tangible evidence or material which constitutes sufficient cause to believe existence of certain facts. This reason to believe goes to the root of the power of arrest. The subjective opinion of Arresting Officer is based upon fair and objective consideration of material as available with him on the date of arrest. On the basis of reason to believe the Court shall form the secondary opinion on the validity of the exercise undertaken for compliance of Section 19 (1) of the PMLA when the arrest is made. Power to arrest under Section 19 (1) of the PMLA is not for the purpose of investigation. Arrest can and should wait and the power in terms of Section 19(1) of the PMLA can be exercised only when the material with the designated officers enables them to form an opinion by recording reasons in writing that the arrestee is guilty. Section 19(1) thus does not permit arrest only to conduct investigation. Conditions of Section 19(1) have to be satisfied Clauses A C D and E to Section 41(1)(ii) of the Cr.P.C. apart from other considerations may be relevant. In order to prove the involvement of the petitioner in illegal sand mining business at least some material was required to be produced to the effect that the petitioner deposited money as per his share for winning the bid. No such evidence unfortunately was produced by the ED in course of its investigation. There is absolutely no ambiguity with regard to the scope of Section 50. The only question is as to whether the statement of the petitioner involved him in an offence of moneylaundering. The petitioner admitted that he had financial transitions with M/s AMPL. According to the case of the prosecution it is M/s AMPL and its Director who have proceeds of crime. There is absolutely no evidence that the petitioner directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity (here sand scam) connected with the proceeds of crime including its concealment possession acquisition or use and projecting or claiming it as untainted property. Conclusion - The statement containing reason to believe delivered by ED to petitioner does not contain satisfactory material to hold that the petitioner is guilty of offence under Section 3 of the PMLA. The petitioner s arrest dated 20th of September of 2024 is illegal and in violation of the safeguards contained in Section 19(1) of the PMLA. Petition allowed.
The Court considered several key issues in this case, primarily revolving around the legality of the petitioner's arrest under the Prevention of Money Laundering Act, 2002 (PMLA). The petitioner challenged the arrest as being illegal and arbitrary, arguing that it violated Section 19 of the PMLA and Article 21 of the Constitution of India. The petitioner sought relief in the form of release from judicial custody, quashing of remand orders, and compensation for damages incurred due to the alleged illegal actions of the authorities.
The Court's detailed analysis focused on the following core issues: 1. Legality of the Petitioner's Arrest: The Court examined whether the arrest of the petitioner by the Enforcement Directorate (ED) was in compliance with Section 19 of the PMLA, which requires the arresting officer to have "reason to believe" that the person is guilty of an offense under the Act. This belief must be based on material evidence and recorded in writing. The petitioner argued that the ED failed to establish any nexus between him and the alleged illegal sand mining activities of M/s Aditya Multicom Private Limited (AMPL), and that there was no evidence to support the claim that he was involved in money laundering activities. 2. Evidence and Material Considered by the ED: The Court scrutinized the evidence and materials relied upon by the ED to justify the petitioner's arrest. This included the statement of a co-accused, Mithlesh Kumar, who allegedly implicated the petitioner as a syndicate member with a 10% share in the illegal profits from sand mining. Additionally, a ledger book seized from Radha Charan Sah purportedly contained entries indicating financial transactions between the petitioner and AMPL. The Court noted the petitioner's contention that these transactions were personal loans, not proceeds of crime, and that they were duly reported in his income tax returns. 3. Procedural Safeguards and "Reason to Believe": The Court emphasized the importance of procedural safeguards under Section 19 of the PMLA, which protect individuals' rights against arbitrary arrest. The term "reason to believe" was analyzed in depth, with reference to legal precedents and statutory interpretations. The Court highlighted that "reason to believe" must be based on tangible evidence, not mere suspicion or conjecture, and that the ED failed to provide sufficient material to substantiate the petitioner's alleged involvement in money laundering activities. 4. Admissibility of Evidence: The Court addressed the admissibility of evidence, particularly the reliance on entries in loose sheets and statements made by co-accused individuals. Citing legal precedents, the Court reiterated that such evidence must be corroborated by independent material to be admissible and credible. The ED's failure to corroborate the allegations against the petitioner with independent evidence was a significant factor in the Court's analysis. 5. Violation of Fundamental Rights: The Court considered the petitioner's argument that his arrest and detention violated his fundamental rights under Article 21 of the Constitution, which guarantees the right to life and personal liberty. The Court found that the procedural safeguards under Section 19 of the PMLA were not adequately followed, rendering the arrest illegal and violative of the petitioner's constitutional rights. Significant Holdings: The Court concluded that the petitioner's arrest was illegal and in violation of Section 19 of the PMLA, as well as Article 21 of the Constitution. The Court ordered the immediate release of the petitioner from judicial custody, subject to conditions set by the Special Judge. The Court emphasized the need for adherence to procedural safeguards and the requirement of tangible evidence to justify arrests under the PMLA. The judgment underscored the principle that arrests should not be made solely for the purpose of investigation and must be based on objective and fair considerations of material evidence. The Court's decision reinforced the importance of protecting individual rights against arbitrary state actions and ensuring that law enforcement agencies adhere to statutory and constitutional mandates when exercising their powers. The judgment serves as a reminder of the judiciary's role in upholding the rule of law and safeguarding fundamental rights in the face of executive actions.
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