Court holds Enforcement Directorate's arrest a colourable exercise of power, quashes remand order, emphasizing mandatory compliance with Section 50 before arrest under Section 19 of PMLA
In a significant judgment delivered on September 21, 2026, the Bombay High Court under Justice Milind N. Jadhav ruled that the arrest of Rajendra Narpatmal Lodha by the Enforcement Directorate (ED) under the Prevention of Money Laundering Act, 2002 (PMLA) was illegal and amounted to a colourable exercise of power. The Court quashed the remand order dated February 13, 2026, and all subsequent custody orders, granting bail to the petitioner on furnishing a bond and subject to certain conditions.
The dispute arose from the ED's investigation into allegations of money laundering involving Lodha, linked to two First Information Reports registered in September 2025. Lodha was arrested initially in the predicate offence in September 2025 and remained in judicial custody. In January 2026, ED sought and obtained permission from the Special Court under Section 50(2) and (3) of PMLA to interrogate and confront Lodha with material in its possession. However, despite this permission, the ED did not record Lodha's statement or confront him before arresting him on February 12, 2026, under Section 19 of PMLA, relying on the same material that was already in possession when the Section 50 application was filed.
The Court observed that the power to arrest under Section 19 is drastic and discretionary and can only be exercised when the authorized officer records reasons in writing, based on fresh material, that the person is guilty of an offence under PMLA. It emphasized that once the ED had invoked the procedure under Section 50 to question Lodha, it could not abandon that course without any fresh incriminating or supervening material to justify arrest. The Court found that no new material surfaced between January 30 and February 12, 2026, to warrant arrest and that the ED's failure to record the statement despite the court's permission was a procedural lapse.
Further, the Special Court's remand order was quashed for non-application of mind, as it failed to address the petitioner's objections regarding the lack of necessity and legal basis for arrest and remand, especially given the prior order permitting interrogation under Section 50.
Rejecting the ED's argument that the arrest was justified notwithstanding the pending Section 50 proceedings, the Court held that the statutory safeguards under Sections 19 and 50 must be strictly complied with, as arrest affects personal liberty. The Court also declined the ED's request to stay the bail order.
Lodha was released on bail upon furnishing a bond of Rs. 5,00,000 and subject to conditions including regular reporting to the investigating officer, cooperating with investigation and trial, depositing his passport, not leaving India without permission, and refraining from tampering with evidence.
This judgment reinforces the principle that law enforcement agencies must follow procedural safeguards under PMLA strictly and cannot use arrest as a tool to circumvent ongoing investigation procedures. It underscores the judiciary's role in scrutinizing the legality of arrests under special statutes to protect individual liberty from arbitrary exercise of power.
Bottom Line:
Prevention of Money Laundering Act, 2002 Sections 19 and 50 Where ED had already invoked Section 50(2) and (3), obtained Special Court's permission to examine and confront accused in judicial custody, but without recording his statement and without any fresh incriminating material or supervening circumstance, proceeded to arrest him under Section 19 on the same material, such arrest was held illegal as a colourable exercise of power - Remand order and subsequent custody orders quashed - Petitioner granted bail.
Statutory provision(s):
Prevention of Money Laundering Act, 2002 Sections 19, 50(2), 50(3), 50(4)
