How the Supreme Court hemmed in ED’s power to arrest through the Kejriwal bail order

Last week’s Supreme Court order granting interim bail to Delhi Chief Minister Arvind Kejriwal in the money-laundering case filed by the Enforcement Directorate has not resulted in him walking out of prison because the Central Bureau of Investigation has arrested him in another case.

But the judgement by the bench of Justices Sanjiv Khanna and Dipankar Datta is nevertheless an important one.

It underscores the importance of transparency, judicial oversight and objective reasoning in the Enforcement Directorate’s exercise of powers to arrest under the Prevention of Money Laundering Act, a law that critics say is being misused to target the political Opposition.

Highlighting the lack of a clear policy on arrests, the judgement points out that the agency’s own data shows that in 5,906 cases filed under the money laundering law, only 513 persons had been arrested. This raises questions about whether the Enforcement Directorate is acting uniformly and consistently while making arrests, the judgement argues.

The judgement also clarifies that arrests are not to be made routinely in money-laundering cases. It articulates the threshold for the grounds on which the Enforcement Directorate can make arrests under the law, paving the way for what could be a new safeguard – the “need and necessity to arrest”.

Scroll unpacks the verdict.

Arrest subject to judicial review

Since August 2022, the Central Bureau of Investigation has been probing allegations that the Aam Aadmi Party and its leaders took kickbacks from businessmen as it handed out licences for liquor shops in Delhi.

Based on the Central Bureau of Investigation’s first information report, the Enforcement Directorate initiated a money laundering case against the party and its leaders, alleging that they used the bribe money to fund an election campaign in Goa in 2022.

The Enforcement Directorate arrested Kejriwal on March 21 this year.

The chief minister challenged the legality of his arrest before the Delhi High Court. After the High Court disallowed his challenge on April 4, Kejriwal went to the Supreme Court.

During the course of the hearings before the Supreme Court, the Enforcement Directorate argued that judicial scrutiny of arrests made under the money laundering law is not permissible for it would interfere with the investigation of the case. Since the law vests the discretion and right to arrest in a class of officers, their subjective opinion regarding the grounds for the arrest should prevail.

Rejecting this contention, the court noted that Section 19 of the law, which prescribes the power to arrest, outlines the conditions under which arrest may be made. If any of these conditions are not fulfilled, the arrest would be illegal, it noted.

Any illegality or unconstitutionality in the arrest would not be validated even if a court grants custody of the accused to the Enforcement Directorate, or if the agency files a prosecution complaint – the equivalent of a chargesheet under the act – in the court. That is, the legality of an arrest can be challenged by the accused and examined by a court at any time.

Ambit of power to arrest

The conditions to be fulfilled for arrest, as per Section 19(1) of the Prevention of Money Laundering Act are:

• the officer must have material in their possession
• on the basis of such material, the officer should form and record in writing, “reasons to believe” that the person to be arrested, is guilty of an offence punishable under the act
• the person arrested must be informed, as soon as possible, of the grounds of arrest.

The court went into the scope of what “reasons to believe” means. It held that the “reasons to believe” that the person is guilty of an offence under the act should be founded on the material in the form of documents and oral statements with the Enforcement Directorate. Thus, it could not be based on evidence that would not be admissible in court.

The “reasons to believe” constitute the authorised officer’s genuine belief and reasoning, based on evidence, that establishes the arrestee’s guilt.

The court distinguished “reasons to believe” from grave suspicion. The standard under Section 19, the court explained, is that “the reasons for the formation of the belief … must have a rational connection with or an element bearing on the formation of belief.” The rationale for the arrest, in other words, must be watertight and more than mere suspicion.

The court made it clear that in a challenge to arrest, the onus to establish the satisfaction of this condition would be on the Enforcement Directorate, not the arrestee as the “reasons to believe” are accorded by the authorised officer.

These “reasons to believe” should be furnished to the arrestee to enable them to exercise their right to challenge the validity of arrest, the court further held.

As far as the material on the basis of which the arresting officer concludes that they have reasons to believe that the arrestee is guilty of an offence, the court held that the arresting officer could not “selectively pick and choose material implicating the person to be arrested”. The officer must also consider material that may exonerate the arrestee.

“The power to arrest … cannot be exercised as per the whims and fancies of the officer,” the judgement said.

This led to the court clarifying that the power of judicial review of arrests under the money laundering law would be limited to ascertaining whether the “reasons to believe” were based upon material which establish that the arrestee was guilty of an offence under the law.

No unchecked power to arrest

The court gave a sobering reminder that the power of arrest must be exercised in a restrained manner. It is not for the purpose of investigation, the judgement pronounced.

“Arrest can and should wait, and the power [to arrest] can be exercised only when the material with the designated officer enables them to form an opinion, by recording reasons in writing that the arrestee is guilty,” it said.

The court clarified that if the Enforcement Directorate has grave suspicion against someone of committing an offence under the act, it may frame charges against them and put them on trial. However, this could not be equated with the power to arrest since a person need not be arrested in order to have charges framed against them or face trial.

“The language of Section 19(1) is clear, and should not be disregarded to defeat the legislative intent – to provide stringent safeguards against pre-trial arrest during pending investigations,” it said.

‘Necessity to arrest’

In its judgement, the court held that the Enforcement Directorate had successfully shown that it had “reasons to believe” that Kejriwal was guilty on the basis of material that it relied upon.

Kejriwal sought to show that the Enforcement Directorate did not evaluate all material and relied on selective material in a biased manner. But the court held that its limited power of judicial review did not permit it to go into a “merits review” of Kejriwal’s contentions and that those were best left to be examined during a bail hearing.

However, the court gave weightage to Kejriwal’s plea that the “reasons to believe” for his arrest did not mention any reasons for the necessity of his arrest. The “necessity to arrest” as a precondition to arrest in all offences has been recognised by the Supreme Court in several judgments in the past.

Since the constitutionality of Section 19 of the money laundering law was upheld by a three-judge bench of the Supreme Court in 2022, the two-judge bench of Khanna and Datta deemed it improper to add to or question the legitimacy of the provision. This is because in the common law system followed in India, decisions by larger benches of a court are binding on lower-strength benches of that court.

Instead, Khanna and Datta referred the question of adding necessity of arrest as an additional ground within Section 19(1) to a larger bench of the court for adjudication.

What about Kejriwal?

Pending the assignment of the matter to a larger bench and its adjudication, Kejriwal was given interim bail by Khanna and Datta.

The judgement said that this does not impact any pending application for regular bail which would be decided on its own merits.

Kejriwal’s pursuit of bail will continue to play out in multiple courts.

He had been granted regular bail by a district court in this matter on June 20. However, the bail order was immediately stayed by the Delhi High Court pending the adjudication of the appeal filed by the Enforcement Directorate against the bail order.

On June 26, Kejriwal was arrested by the Central Bureau of Investigation in the liquor policy case. He moved the Delhi High Court on July 1 against the arrest and remand. The matter is pending.