The Bombay High Court held that the ED could not justify arrest on material already available for questioning, in the absence of fresh incriminating material or supervening circumstances, where the accused had repeatedly cooperated with the investigation.
The bench of Justice Milind N. Jadhav has declared the arrest of the accused by the Directorate of Enforcement (ED) illegal and ordered his immediate release, holding that the agency’s exercise of arrest powers under the Prevention of Money Laundering Act, 2002 (PMLA), was unjustified in the circumstances of the case.
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The bench found that the ED had relied on material already in its possession, without demonstrating any fresh incriminating material or intervening circumstances warranting arrest.
The Court also rejected the ED’s request to stay the judgment for two weeks to enable it to approach the Supreme Court.
The proceedings originated from an FIR registered at Naupada Police Station, Thane, on October 6, 2023, alleging offences under the Indian Penal Code and the Information Technology Act. Pandey was initially named as accused No. 4.
The ED registered its Enforcement Case Information Report on December 26, 2023, in connection with the predicate offences. The judgment records that the proceeds of crime were initially shown as ₹1,618 crore.
According to the allegations summarised in the judgment, Pandey and others procured identity documents from individuals under the pretext of arranging jobs or loans and used them to establish 97 partnerships and 18 private limited companies, through which 269 mule bank accounts were opened.
The prosecution alleged that forged invoices, bills of lading, Forms 15CA and 15CB, and other banking documents were used to remit money abroad in the guise of freight payments. These remittances were allegedly intended to settle differential payments for imports whose value had been understated to evade customs duty.
The judgment refers to ₹7,569 crore in alleged remittances while narrating the prosecution background. Separately, it records the ED’s submission that accounts controlled by Pandey were used for fraudulent foreign remittances of ₹7,358 crore.
Pandey was arrested in the predicate case on March 31, 2024, and was granted regular bail on June 7, 2024. The ED subsequently arrested him on June 23, 2026.
The accused approached the High Court challenging the ED arrest and the remand orders dated June 23, June 29 and July 4, 2026.
The petitioner maintained that he had repeatedly appeared before the agency, answered questions and made disclosures. His counsel argued that an allegation of non-cooperation could not justify arrest when the record demonstrated sustained participation in the investigation.
It was further submitted that Section 19(1) requires the authorised officer to form and record a reasoned belief, based on material in possession, that the person is guilty of an offence under the PMLA. Arrest, counsel argued, could not be used merely to facilitate further investigation.
The petitioner also disputed whether the alleged acts generated proceeds of crime relatable to the scheduled offences. However, the Court confined its determination to the legality of arrest.
The ED alleged that Pandey controlled shell entities and bank accounts used for fraudulent overseas remittances.
The agency relied on statements of persons associated with the entities and alleged admissions in Pandey’s statements under Section 50 of the PMLA. It contended that he had earned commissions, routed funds through accounts belonging to himself and his family, and acquired properties from proceeds of crime.
The ED also alleged that Pandey had earned approximately ₹17–18 crore through the hawala arrangement and had disposed of properties to conceal assets from attachment proceedings.
According to the agency, he had failed to disclose the complete identities of the fund owners, intermediaries, foreign recipients and ultimate beneficiaries. It argued that custody was necessary to uncover the full network and trace the funds.
The High Court found that Pandey had cooperated with the agency.
The Court found that the information sought by the ED had already been furnished through the statements and disclosures on record.
It also noted that, after the statement recorded on May 15, 2026, the agency had more than a month before the June 23 arrest but had made no attempt to question him further during that period.
In that setting, the Court rejected the agency’s reliance on alleged evasiveness or non-cooperation.
The High Court examined the relationship between Section 50, which empowers the ED to summon persons, record evidence and require documents, and Section 19, which governs arrest.
The Court noted that the ED had invoked Section 50 to seek permission to confront Pandey with material and record further statements. Its applications demonstrated that the agency wished to obtain additional answers on material already available to it.
In the circumstances, the Court held that the agency could not abandon that course and invoke Section 19 on the same material without showing fresh incriminating circumstances or a supervening exigency.
The judgment records the ED counsel’s admission that no new incriminating material or development had emerged during the relevant period preceding the arrest.
Justice Jadhav emphasised that Section 19 uses the expression “may arrest”, making the power discretionary. Its exercise therefore required justification under the statutory safeguards.
The Court characterised the resort to arrest, while foregoing the contemplated questioning on the same material, as a colourable exercise of power.
The High Court declined to accept the seriousness of the alleged offence as sufficient justification for arrest in the circumstances before it.
Referring to Supreme Court decisions, including Arvind Kejriwal v. Directorate of Enforcement and Radhika Agarwal v. Union of India, the Court emphasised the safeguards governing the formation of “reasons to believe” under Section 19.
It held that courts can judicially review the legality of an arrest to ensure compliance with those safeguards.
The Court’s decision concerned the validity of the arrest and remand. It did not determine whether the underlying money-laundering allegations were proved.
The High Court declared Pandey’s arrest illegal and violative of Section 19(1) of the PMLA and Articles 14 and 21 of the Constitution.
It set aside the remand orders dated June 23, June 29 and July 4, 2026, along with subsequent remand orders covered by the relief granted.
The Court directed his release forthwith on the basis of an authenticated copy of the judgment downloaded from the Bombay High Court website.
The ED’s request for a two-week stay was declined in view of the reasons recorded in the judgment and the direction for immediate release.
The accused was represented by Advocates Ravindra Kadam, Senior Advocate a/w Mr. Shrey S. Lodha, Mr. Dulraj Jain, Mr. Aryan Kotwal, Ms. Anjali Joshi, Hrutik Chavan and Aarti Nishad i/by D’vocate Legal LLP.
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