Explained: Delhi CM Arvind Kejriwal’s Second Interim Bail Order in the Alleged Liquor Scam Case

On Friday, a Supreme Court Bench comprising Justice Sanjiv Khanna and Justice Dipankar Datta granted interim bail to Delhi Chief Minister Arvind Kejriwal in a case registered against him under the Prevention of Money Laundering (PMLA) Act, 2002 in connection with the alleged liquor scam case.

But by directing him to not visit the chief ministerial office or the Delhi secretariat while being out on bail, the court has effectively put Kejriwal’s chief ministership in limbo.

This marks the second time the Bench has granted Kejriwal interim bail in the same case and the same proceedings. Earlier, he was granted bail on May 10 to enable him to campaign in the Lok Sabha elections. He was directed to surrender by June 3.

The Bench noted that it was conscious that Kejriwal is an elected leader and the chief minister of Delhi, a post holding importance and influence. It added that it was doubtful whether it could issue a direction to an elected leader to step down or not function as the chief minister or as a minister, so it left it to Kejriwal to take a call.

But by directing him to not visit the chief ministerial office or the Delhi secretariat while being out on bail, the court has effectively put Kejriwal’s chief ministership in limbo.

Kejriwal will, however, continue to remain in jail since he is yet to get bail in the same liquor policy case registered by the Central Bureau of Investigation (CBI).

On May 16, the Bench had concluded the hearing on a petition by Kejriwal challenging his arrest under Section 19 of the PMLA. The Delhi High Court had upheld the arrest under the PMLA.

During the pendency of the petition challenging the arrest, Kejriwal had approached the special judge under the PMLA for regular bail. Judge Nyay Bindu granted bail to Kejriwal, which was stayed by the Delhi High Court’s Justice Sudhir Kumar Jain the next day.

Kejriwal had challenged the stay Order before the Supreme Court but the court said it would wait for the reasoned Order by the high court. After Justice Jain allowed the stay application filed by the Directorate of Enforcement (ED), Kejriwal chose to withdraw his petition from the Supreme Court with the liberty to file afresh a petition challenging the Order staying bail granted to him.

Even though an Order on Kejriwal’s petition challenging his arrest by the ED was pending with the Supreme Court, the CBI arrested Kejriwal in the same liquor policy case on June 26, in a first information report (FIR) it had filed as far back as August 17, 2022.

In today’s judgment, the Supreme Court has touched upon many crucial aspects of the ED’s power to arrest under Section 19 of the PMLA.

Section 19(1) of the PMLA confers power upon the ED to make an arrest provided that the officer, “based on material in his possession”, has “reason to believe” (the reason for such belief to be recorded in writing) that any person has been “guilty” of an offence punishable under the PMLA.

The Bench has interpreted Section 19 of the PMLA and its contour.

However, on the issue of reading “need and necessity to arrest” into Section 19 of the PMLA, the Bench framed three questions and referred the matter to a larger Bench. The issues are:

(a) Whether the “need and necessity to arrest” is a separate ground to challenge the Order of arrest passed in terms of Section 19(1) of the PMLA.

(b) Whether the “need and necessity to arrest” refers to the satisfaction of formal parameters to arrest and take a person into custody, or it relates to other personal grounds and reasons regarding the necessity to arrest a person in the facts and circumstances of the said case. 

(c) If questions (a) and (b) are answered in the affirmative, what are the parameters and facts that are to be taken into consideration by the court while examining the question of “need and necessity to arrest”?

The term “necessity to arrest” is not mentioned in Section 19(1) of the PMLA. But this expression has a judicial recognition in a decision delivered in Arnesh Kumar versus State of Bihar in the context of the power of the police under the Code of Criminal Procedure (CrPC) to arrest a person.

In Arnesh Kumar, the Supreme Court laid down that the “necessity to arrest” must be considered by an officer before arresting a person. The court observed that the officer must ask himself the questions: Why arrest? Is it really necessary to arrest? What purpose would it serve? What object would it achieve?

Coming to the interpretation given by the Bench to Section 19 of the PMLA in so far as other aspects of it are concerned, the Bench made some crucial observations.

The court can review the arrest under the PMLA

The ED had argued that the power to arrest is neither an administrative nor a quasi-judicial power as an arrest is made during the investigation and thus the judicial scrutiny of an arrest is not permissible, as it would interfere with the investigation.

At best, judicial review should be limited to subversive abuse of law.

The ED had also contended that the discretion and right to arrest vests with the competent officer, whose subjective opinion should prevail.

Kejriwal will, however, continue to remain in jail since he is yet to get bail in the same liquor policy case registered by the CBI.

The Bench rejected the argument and affirmed that the power of judicial review would prevail. It held that the court is required to examine that the exercise of the power to arrest meets statutory conditions.

The accused is entitled to be informed of ‘reasons to believe’ to arrest

Section 19(1) of the PMLA confers power upon the ED to make an arrest provided that the officer, based on material in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of an offence punishable under the PMLA.

The ED argued that the accused is entitled to the “grounds of arrest” and not “reasons to believe”. Grounds of arrest may only summarily refer to the reasons given for arrest.

The Bench did not agree with the argument of the ED. Giving a meaningful interpretation to the term “reason to believe”, the Bench said it means that the guilt of a person for an offence under the PMLA should be founded on the material in the form of documents and oral statements.

“Clearly, ‘reason to believe’ has to be distinguished and is not the same as grave suspicion. It refers to the reasons for the formation of the belief, which must have a rational connection with, or an element bearing on the formation of belief. The reason should not be extraneous or irrelevant for the purpose of the provision,” the Bench held.

It also held that it would be incongruous, if not wrong, to hold that the accused can be denied and not furnished a copy of the “reasons to believe” after recognising that the court has the power to review the arrest made under Section 19 of the PMLA.

“We are concerned with the violation of personal liberty, and the exercise of the power to arrest in accordance with law. Scrutiny of the action to arrest, whether in accordance with law, is amenable to judicial review. It follows that the ‘reasons to believe’ should be furnished to the arrestee to enable him to exercise his right to challenge the validity of the arrest,” the Bench held.

However, the Bench clarified that there may be some cases where it would not be feasible to reveal all material, including names of witnesses and details of documents when the investigation is in progress.

In such cases, the ED may claim redaction and exclusion of specific particulars and details. But the onus to justify redaction would be on the ED, the Bench added.

The Bench, however, made it clear that the entire file must be produced before the court. It is for the court to examine the request of the ED to withhold the portion of the “reasons to believe” and the document.

The Bench said the ED cannot be the sole judge in deciding what document can be withheld.

Extent of judicial review in examining the arrest

After having held that there can be judicial review of the arrest made under the PMLA, the Bench went on to determine the extent of it. It opined that the judicial review of the arrest does not amount to a mini-trial or a merit review.

Judge Nyay Bindu granted bail to Kejriwal, which was stayed by the Delhi High Court’s Justice Sudhir Kumar Jain the next day.

The purpose of judicial review, the Bench said, is only to ascertain whether the “reasons to believe” are based upon material, which “establish” that the arrestee is guilty of an offence under the PMLA. In addition to this, it is to ensure that the ED has acted in accordance with the law.

The Bench asserted that not performing judicial scrutiny when needed would be an abdication and failure of constitutional and statutory duty placed on the court to ensure that the fundamental right to life and liberty is not violated.

Grounds for arrest under the CrPC and PMLA cannot be equated

An arrest can be made on the grounds mentioned in clauses (a) to (i) of Section 41(1) of the CrPC, which include a reasonable complaint, credible information or reasonable suspicion that a person has committed an offence, or the arrest is necessary for proper investigation of the offence, etc.

The ED cited a series of judgments dealing with the scope of judicial interference in investigations, including the power of arrest. The Bench rejected the reliance placed upon those judgments citing that arrest under the PMLA is governed by Section 19 under which conditions are restrictive and rigid.

The Bench also opined that the legislature has deliberately avoided reference to the grounds mentioned in Section 41 of the CrPC in Section 19 of the PMLA.

Power to arrest under Section 19(1) is not for the purpose of investigation

The ED sought to argue that Section 19 of the PMLA uses the expression “material in possession” instead of ‘evidence in possession’.

The Bench observed that though etymologically the argument is correct, it overlooked the fact that under Section 19 of the PMLA, the ED should and must, based on the material, reach and form an opinion that the arrestee is “guilty” of the offence under the PMLA.

The “guilt”, the Bench observed, can only be established on admissible evidence to be led before the court, and cannot be based on inadmissible evidence.

Explaining further, the Bench noted that while there is an element of a hypothesis, as oral evidence has not been led and the documents are to be proven, the decision to arrest should be rational, fair and as per the law.

“Power to arrest under Section 19(1) 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 officer enables them to form an opinion, by recording reasons in writing that the arrestee is guilty,” the Bench held.

Distinction between power under Sections 19 and 45 of the PMLA

As noted above, Section 19 of the PMLA deals with the power of the ED to arrest a person. Section 45 deals with the power of the special court to grant bail.

In today’s judgment, the Supreme Court has touched upon many crucial aspects of the ED’s power to arrest under Section 19 of the PMLA.

The bail can only be granted under Section 45 of the PMLA after giving an opportunity to the public prosecutor to oppose the application and where the public prosecutor opposes the application, and the court is satisfied that there are reasonable grounds for believing that the accused is not guilty of such offence and that he is not likely to commit any offence while on bail.

Explaining the difference between powers referable in Section 19 and 45 of the PMLA, the Bench said in the former case, it is the designated or authorised officer who records in writing their “reasons to believe” that the arrestee is “guilty” of an offence under the PMLA. Thus, the arrest is based on the opinion of such an officer, which opinion is open to judicial review.

Under Section 45, it is the special court that undertakes the exercise. The special independently examines pleas and contentions of both the accused and the ED and arrives at an objective opinion.

The Bench importantly held that the special court is not bound by the opinion of the designated or authorised officer recorded in the “reasons to believe”.

“A court’s opinion is different and cannot be equated to an officer’s opinion. While the special court’s opinion is determinative and is only subject to appeal before the higher courts, the DoE’s (ED) opinion is not in the same category as it is open to judicial review,” the Bench held.

The Bench also held that the right to bail under Section 45 of the PMLA is not dependent on the stage of the proceedings. The power of the court under Section 45 is unrestricted with reference to the stage of the proceedings.

“All material and evidence that can be led in the trial and is admissible, whether relied on by the prosecution or not, can be examined,” the Bench added.

On facts

After interpreting Section 19, the Bench turned to the facts of Kejriwal’s case. The ED had produced the “reasons to believe” to invoke Section 19(1) of the PMLA before the Bench’s perusal.

Importantly, the Bench observed that as per the narration of facts and assertions made in the “reasons to believe”, the subjective satisfaction that Arvind Kejriwal is guilty was clearly recorded.

But senior advocate Abhishek Manu Singvhi, for Kejriwal, had argued that the “reasons to believe” did not mention and evaluate “all” or “entire” material. The ED selectively referred to “incriminating” material by giving it a semblance of good faith exercise.

In Arnesh Kumar, the Supreme Court laid down that the “necessity to arrest” must be considered by an officer before arresting a person.

It was also contended that the expression “material” in Section 19(1) of the PMLA refers to “all” or “entire” material in possession of the ED. Thus, “all” or “entire” material must be examined and considered by the designated or authorised officer to determine the guilt or innocence of the person.

In support, Singhvi referred to the statements of some co-accused about how they initially did not make allegations against him, but after the arrest, they made statements against Kejriwal.

On this basis, Singhvi argued that the “reasons to believe” selectively referred to the implicating material and ignored the exculpatory material. Thus, there was no attempt to evaluate the entire material and evidence on record.

Singhvi also highlighted the ED’s change of position regarding the co-accused conspirators, who were granted bail post the statements implicating Kejriwal. This, Singhvi argued, established and shows prejudice and malicious intent.

Bench did not decide the issue of arrest

The Bench did not render any findings on the arrest of Kejriwal even after penning 64 pages. The Bench opined that the arguments made by Kejriwal tended to dent statements and material relied upon by the ED in the “reasons to believe”. They showed that although worthy of consideration, the statements and material are in the nature of “propositions” or “deductions”.

“They are a matter of discussion as they intend to support or establish a point of view on the basis of inferences drawn from the material. It is contended that the statements relied upon by the DoE (ED) have been extracted under coercion, a fact that is contested and has to be examined and decided.

The ED argued that the accused is entitled to the “grounds of arrest” and not “reasons to believe”. Grounds of arrest may only summarily refer to the reasons given for arrest.

“This argument does not persuade us, given the limited power of judicial review, to set aside and quash the ‘reasons to believe’. Accepting this argument would be equivalent to undertaking a merits review,” the Bench held.

Instead, the Bench observed that Kejriwal could raise these arguments at the time when his application for bail is taken up for hearing.

“In bail hearings, the court’s jurisdiction is wider, though the fetters in terms of Section 45 of the PMLA have to be met. The special court would have to independently apply its mind, without being influenced by the opinion recorded in the ‘reasons to believe’,” the Bench said.

On law, the Bench observed that the legality of the “reasons to believe” has to be examined based on what is mentioned and recorded therein and the material on record.

However, the officer acting under Section 19(1) of the PMLA cannot ignore or not consider the material which exonerates the arrestee. Any such non-consideration, the Bench held, would lead to difficult and unacceptable results.

“An officer cannot be allowed to selectively pick and choose material implicating the person to be arrested. They have to equally apply their mind to other material that absolves and exculpates the arrestee. The power to arrest under Section 19(1) of the PMLA cannot be exercised as per the whims and fancies of the officer,” the Bench held.

ED must act uniformly

The Bench referred to the data available on the website of the ED as of January 31, 2023— 5,906 Enforcement Case Information Reports (ECIRs) were recorded by the ED.

The Bench did not render any findings on the arrest of Kejriwal even after penning 64 pages.

However, a search was conducted in 531 ECIRs by issue of 4,954 search warrants. The total number of ECIRs recorded against ex-members of Parliament, and members of legislative assemblies and councils was 176. The number of persons arrested is 513. Whereas the number of prosecution complaints filed is 1,142.

The Bench said the data raised a number of questions, including the question of whether the ED has formulated a policy on when they should arrest a person involved in offences committed under the PMLA.

“Section 45 gives primacy to the opinion of the DoE (ED) when it comes to the grant of bail. DoE should act uniformly, consistent in conduct, confirming one rule for all,” the Bench observed.

Click here to read the order.