Judgments on PMLA

The present article attempts to cover important and landmark judgments delivered by Supreme Court and High Courts of the country, on issues arising out or pertaining to the Prevention of Money-Laundering Act, 2002 (PMLA). The judgments from January to June 2023 are covered in this opening part1, which are as follows:

(1) Prakash Industries Ltd. v. Union of India2

(Delivered on 24-1-2023) Delhi High Court (DHC)

Coram: Single Judge Bench of Justice Yashwant Varma

Authored by: Justice Yashwant Varma

The writ petitions raised important questions relating to powers of the Enforcement Directorate (“ED”) to provisionally attach properties under Section 5 of the PMLA, even though no proceedings relating to the predicate offence may have been initiated by the competent agency functioning under an independent statute. Another issue was whether the ED could be recognised to have the jurisdiction to enforce the measures contemplated in Section 5 of the Act solely upon it being of the opinion that the material gathered in the course of an investigation or enquiry evidences the commission of a predicate offence, without the predicate offence actually been so registered.

The challenge was principally laid to the action of the ED of passing a provisional attachment order (“PAO”). The proceedings drawn by the ED emanated from a first information report (FIR) registered by the Central Bureau of Investigation (CBI) in December 2014. A separate complaint under Section 45 of the PMLA was also instituted and is continuing. Initially the interim orders were passed in May 2022, through which proceedings before the Special Judge were stayed. Meanwhile, the adjudicating authority was also restrained from passing the final order on the aspect of attachment of the properties.

The gravamen of allegations related to allocation of Fatehpur Coal Block in Chhattisgarh to the petitioners by the Ministry of Coal, Government of India ( “GoI”) in 2006. It was stated that net worth was falsely ballooned by the petitioners to be projected and falsely represented to procure the coal block allotment in their favour. The predicate offence was thus registered by the CBI, close on to the heels of which the ED also registered enforcement case information report (ECIR). Eventually, the allocation of the said Fatehpur Coal Block was cancelled by the Supreme Court through its judgment rendered in Manohar Lal Sharma v. Union of India3. In fact, the Supreme Court had cancelled all the coal block allotments made by the GoI, whereafter only the ECIR came to be registered. Undisputedly the ECIR was registered after the final report had been submitted by the CBI before the Special Judge in August 2014.

A preliminary objection was taken on behalf of the ED that the High Court was not competent to hear the petitions challenging the PAO since in view of the judgment of Manohar Lal Sharma case4, the said challenge could be made only before the Supreme Court and nowhere else. However, the High Court repelled the said challenge holding that the directions of the Supreme Court were dealing solely and exclusively with respect to offences emanating from coal block allocations under the Penal Code (IPC) and the Prevention of Corruption (PC) Act. However, the said orders being confined to criminal proceedings instituted in relation to coal block allocations cannot be possibly construed or interpreted as extending to PAOs that may be made under the PMLA Act. The Special Judge or the Special Court constituted to try criminal cases and offences would clearly lack the authority to either deal with or rule upon the validity of PAOs that may be made and therefore the aggrieved parties could not be left remediless, who had High Court only to challenge the decisions and orders passed by the ED on jurisdictional grounds. The writ petition was thus held to be maintainable before the High Court challenging the order of PAO.

The petitioners had broadly contended that the power to pass PAO by the ED can be exercised only if there is existence and substantiation of an offence contemplated under Section 3 being evidenced. The issue of whether the petitioner had committed a crime in the course of allocation of preferential shares does not form part of the criminal investigation initiated against the petitioners in terms of the FIR registered by the CBI. Thus, allegations that were wholly foreign to the reports and charge-sheet filed by the CBI in relation to the predicate offence cannot be made the basis by the ED for proceeding under the PMLA against them. The ED is not empowered to investigate or register reports in respect of scheduled offence but conferred jurisdiction only to try offences of money laundering (“ML”). In the absence of any criminal proceedings having been registered or lodged by the CBI relating to allocation of preferential shares, the PAO also cannot rest upon those allegations. Even though the Fatehpur Coal Block had been allocated to the petitioner, it was never utilised, no coal was extracted and thus, there were no proceeds of crime (“PoC”) that came into existence to be laundered over. Since, no mining activity had been undertaken by the petitioner pursuant to the allocation having been made, the investments made could not be treated as PoC. Merely because certain investments have been used in the commission of scheduled offence, the same cannot be treated as PoC. Reference was made to the judgment of Himachal EMTA Power Ltd. v. Union of India5.

The Court then proceeded to consider the contentions of both the parties, especially the FIR and the charge-sheet filed by the CBI in relation to predicate offences under the provisions of IPC and the PC Act. It was found that the scope of FIR and charge-sheet revolved around allegations pertaining to irregular and illegal allotment of the full block without filing of any proper project report, without any proper scrutiny of the application filed by the petitioners. It was so allotted based on falsely misrepresented reports about net worth and projections as submitted by the various companies, no inter se merit was examined whilst allocation of the coal block, and other such allegations. In fact, the original complaint filed under Section 45 of the PMLA by the ED, also did not travel beyond the allegations that stood compromised in the FIR or the charge-sheet filed by the CBI earlier, the subsequent charge-sheet as also the ECIR all were confined to the allegations made in relation to the predicate offence.

The Court found that allegations with respect to share price manipulations and generation of PoC from such activities were set forth for the first time in the PAO, relating to astronomical rise of their net worth and share prices by relying on audit reports prepared by Chartered Accountants of the petitioner company. The allegations relating to false declarations to the PoC and resultant undue gain in crores of rupees to the petitioner company was found to have been mentioned for the first time in the PAO. Accordingly, the Court proceeded to examine the scheme of the Act, especially Sections 3 to 5 of the PMLA. Referring to the judgment of Vijay Madanlal Choudhary v. Union of India6, it was held that competent authorities under the PMLA would be empowered to prosecute a person for an offence of ML, only if it is found that properties had been “derived or obtained upon commission of crime” included or specified in the Schedule.

The Court then examined the fundamental issue as to whether a coal block allocation could independently fall within the ambit of Section 2(1)(u) and constitute PoC. It was held that allocation cannot per se be recognised as representing PoC, but the subsequent and consequential utilisation of that allocation viz. working of lease, extraction of minerals through the mining activity, generation of revenue from such operations and the investment of those wrongfully obtained monetary gains or extracted minerals can possibly give rise to allegations of ML. It is those financial and monetary gains received from working and operation of the coal block/mining lease that would bring into existence the PoC being derived and obtained directly from such illegal activity of coal block allocation, constituting PoC under Section 2(1)(u) of the PMLA. Thus, allocation per se cannot possibly be viewed or understood as representing PoC in itself.

It was found that the FIR registered and charge-sheet filed by the CBI in relation to the predicate offence confined itself to illegal actions and activities leading up to the allocation of coal blocks alone. Till the said time, no allegations of PoC having been obtained or generated are laid against the petitioner. Resultantly, proceedings initiated based on contrary assumptions under the PMLA would also crumble and disintegrate. Thus, ED could not have proceeded to provisionally attach properties based on allegations and incidents anterior to the allocation of the coal block, admittedly when the coal block had never been worked out or utilised. Referring to the judgment of Himachal EMTA Power Ltd. case7, it was held that investments made in the special purpose vehicle towards allocation of coal block cannot be treated as PoC under Section 2(u) of the PMLA. As it is, the same cannot be treated to be “derived or obtained as a result of any criminal activity” but were simpliciter investments that were pumped into for the procurement of the coal block.

The Court then examined the powers entrusted with the ED under the provisions of the PMLA. The ED was held to be possessing powers in relation to offences relating only to ML and no other offences. It cannot assume that a scheduled offence has been committed, if it finds material discreetly, during the investigation into allegations of ML. The commission of the scheduled offence must be already within the cognizance and investigation by the competent investigating agency, by having been already registered with the jurisdictional police or through an enquiry pending before the competent forum. The registration of a scheduled offence is thus a prerequisite, absent which the ML offences cannot be treated to be existing. The ED cannot possibly arrogate unto itself the power to investigate or enquire into the commission of predicate offences, nor can on its own motion proceed on the surmise that particular set of facts evidence the commission of a scheduled/predicate offence and resultantly on the said surmises initiate punitive actions under the PMLA. Referring to Section 66(2) of the PMLA, it was held that it is obligatory for the director, ED to share and forward the information received during the course of enquiry or investigation about the commission of predicate offence to the competent authority. If it is discovered that some predicate/scheduled offence has been committed, it must immediately furnish the requisite information to the agency concerned for necessary action, but in the same breath, the ED cannot arrogate to itself to enquire into that offence and get into a fishing expedition of action under the PMLA. Thus, even the PAO cannot be based on assumptions or surmises about the commission of scheduled offence by any party.

Accordingly, the Court found that since neither the FIR nor the charge-sheet of the CBI ever comprised allegations relating to allotment of preferential shares or the benefits derived therefrom, therefore the PAO order based on those allegations had no legs to stand upon. In fact, the PAO came to be passed after almost 4 years of the registration of FIR by the CBI, but the ED never bothered to forward the necessary information to the CBI for appropriate action. In fact, the impugned PAO could also not be justified on the anvil of being an emergency attachment since the allotment itself had occurred more than 11 years prior to action initiated by the ED. The powers under Section 5 were held to be exercisable and deserved to be tested based upon the facts and the material existing on the day when it came to be made and not otherwise. PAO cannot be justified on the futuristic prospective action which the ED may choose to do was so held by the Court. Accordingly, the PAO order was thus quashed by the High Court and writ petitions were allowed.

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(2) Rana Ayyub v. Enforcement Directorate8

(Delivered on 7-2-2023) Supreme Court (SC)

Coram: 2-Judge Bench of Justices V. Ramasubramanian and J.B. Pardiwala

Authored by: Justice V. Ramasubramanian

Challenge was laid to summoning order issued by the Special Court, Ghaziabad under the provisions of the PMLA to the petitioner residing at Mumbai. The allegations were that petitioner had indulged in money laundering through an online crowdfunding campaign being run on Ketto platform. The challenge to summons issued under Section 50 were so laid on the grounds of territorial jurisdiction with the primary contention that an offence punishable under the PMLA can be tried only by the Special Court constituted for the area in which the offence has been committed and not any court in the country, at the whims and fancies of the ED. Since, no part of the alleged offence of money laundering was committed within the jurisdiction of Special Court, Ghaziabad and the petitioner’s bank accounts where the alleged PoC got deposited was located in Mumbai, therefore Ghaziabad Court had no powers to entertain the complaint at the instance of ED. The court of Special Judge ought to have, therefore returned the complaint to the respondent under Section 201 of Code of Criminal Procedure (CrPC), and resultantly order taking cognizance is also vitiated by non-application of mind. Two issues were thus framed by the Court for consideration:

(i) Whether the trial of the offence of money laundering should follow the trial of the scheduled/predicate offence or vice versa?

(ii) Whether the court of the Special Judge, Anti-Corruption, CBI Court No. 1, Ghaziabad, can be said to have exercised extraterritorial jurisdiction, even though the offence alleged, was not committed within the jurisdiction of the said Court?

Analysing the provisions of the PMLA, the Court held that it provides for two pronged approaches, one for dealing with the PoC and the other for dealing with the persons guilty of offence of money laundering. In terms of Section 44 the trial in relation to scheduled offence shall be transferred to and be conducted at the same place as the place of trial of the PMLA offence. It is the Special Court constituted under Section 43(1) which is empowered to try even the scheduled offence connected to the same. By virtue of Section 46 read with Section 65, the provisions of the CrPC pertaining to arrest, search and seizure, prosecution and all other proceedings under the Act are applicable, to the PMLA offences, except to the extent when they are specifically excluded. Section 71 of the PMLA providing an overriding effect, therefore, as to be construed and tuned with Sections 46 and 65, not otherwise. Referring to the judgment of Kaushik Chatterjee v. State of Haryana9, it was held that question of territorial jurisdiction revolves around various factors and that jurisdiction of a criminal court is determined not only by the offence, but also by the offender. The expression “local jurisdiction” is defined under Section 2(j) to mean “the local area within which the court or Magistrate may exercise all or any of its powers under the court”. In case of uncertainty about the place in which the offence was actually committed, the court having jurisdiction over any of such multiple local areas may enquire into and try such an offence. A combined reading of Section 44 of the PMLA with Sections 177 to 184 CrPC would show that a Special Court constituted under the PMLA will have jurisdiction to try even the scheduled offence. The offence of money laundering under Section 3 of the PMLA pertains to various processes or activities relating to generation of PoC, which may happen at multiple places. These processes or activities include: (i) concealment; (ii) possession; (iii) acquisition; (iv) use; (v) projecting as untainted property; or (vi) claiming as untainted property. Thus, the aforesaid activities or processes may happen in multiple areas and the area in which either or each of these activities or processes is located, will be the territorial area in which the offence of money laundering is deemed to have been committed, resulting into prosecution and trial of the same before the competent court. Each will be the territorial area in which the offence has been committed.

The contention of the petitioner when examined in the above backdrop cannot be accepted as the online crowdfunding platform on which crowdfunding took place, had number of persons who provided funds with donors situated at different places. Therefore, acquisition of the money happened from different places across the country, through an online mode in the virtual world. The places from where online transfers of money are known only to the petitioner or perhaps their bankers. The question of territorial jurisdiction would therefore require an enquiry as to where the alleged PoC were concealed, possessed, acquired or used. The said aspect and the question of fact can be ascertained only upon the evidence that unfolds before the trial court. It is only the trial court which can consider such issues and answer the same. The issue of territorial jurisdiction in the peculiar facts therefore cannot be decided in a writ petition under Article 32, especially when there are serious factual disputes about the places of commission of the offence of money laundering. Accordingly, the petitioner was given liberty to raise the issue of territorial jurisdiction before the trial court and the petition was disposed of.

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(3) Govind Prakash Pandey v. Enforcement Directorate10

(Delivered on 20-2-2023) (Allahabad High Court)

Coram: Single Judge Bench of Justice Rajesh Singh Chauhan

Authored by: Justice Rajesh Singh Chauhan

The petitioner was being prosecuted for various predicate offences registered under the provisions of the Prevention of Corruption Act by the CBI. The applicant was however granted bail by the High Court in relation to the predicate offence, whilst holding that he had cooperated throughout in the investigation, did not abscond and there is no likelihood of tampering with the evidence by the applicant. The applicant was directed to deposit a sum of Rs 4.89 crores, the alleged misappropriated amount before the learned trial court, which was so deposited in compliance of the Court order. Meanwhile, ED also kickstarted its investigation under the PMLA in furtherance of the ECIR registered by it. Applicant was duly cooperating and his statement was also recorded by the ED under Section 50 of the PMLA on various occasions. After 10 years of registration of ECIR, prosecution complaint was filed in December 2022. On filing of the complaint, the cognizance was taken and summons were issued by the Special Court. The petitioners contended that along with the summons, complete copy of the complaint, copy of the statements of various witnesses and relevant documents relied upon in the complaint were never provided to them. It was further contended that if during investigation the accused has cooperated in investigation and not been arrested by the investigating agency, merely because charge-sheet has been filed, he should not be taken into custody. Referring to the judgments of Aman Preet Singh v. CBI11 and Satender Kumar Antil v. CBI12, to state that when investigatory authority consciously preferred not to arrest the applicant during investigation or post-filing of charge-sheet, then he should not be so arrested, on mere filing of the charge-sheet. Referring to Section 44(2) of the PMLA, it was stated that nothing contained under the PMLA shall affect the special power of the High Court regarding grant of regular bail under Section 439 CrPC, if no requirement was felt to take the applicant into custody when he appeared before the learned trial court pursuant to the summons, then without examining why the arrest of the applicant was warranted and necessary, the trial court could not have taken the accused into custody. It is in the teeth of the law laid down by the Supreme Court in Aman Preet Singh case13 and Satender Kumar Antil case14. Accordingly, the bail application of the petitioner was allowed, by being enlarged on bail subject to certain conditions so imposed by the High Court.

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(4) KA Rauf Sherif v. Enforcement Directorate15

(Delivered on 10-4-2023) Supreme Court (SC)

Coram: 2-Judge Bench of HM Justices V. Ramasubramanian and Pankaj Mithal

Authored by: HM Justice V. Ramasubramanian

The petitioner was a member of Campus Front of India, a banned unlawful association under Section 3 of the Unlawful Activities (Prevention) Act, 1967. The FIR in relation to predicate offence was registered at Police Station, Kannur District under various provisions of the Arms Act and the Unlawful Activities Prevention Act, 1967 (UAPA) by the National Investigation Agency (NIA). 21 persons were convicted by the Special Court NIA for commission of various offences, in relation to offences under the IPC, but were acquitted for offences under UAPA. Thereafter, post-conviction, ECIR came to be registered by the ED, wherein a complaint was filed under the provisions of the PMLA before the Special Court, Lucknow. The ED had filed the complaint in relation to FIR registered at Mathura, as also the FIR registered in Kannur District, Kerala. The Special Judge of the PMLA, Lucknow framed charges against the petitioner and the other accused person, whereafter transfer petition was filed before the Supreme Court seeking transfer of the ED prosecution pending at Lucknow to Ernakulam, Kerala. The transfer was sought from Lucknow to Kerala on the following grounds:

  1. That the proceedings pending before the Special Court, Lucknow are without jurisdiction, as all criminal activities alleged by the prosecution have admittedly taken place in Kerala.
  2. That 7 out of 10 accused are residents of Kerala, even as per the Enforcement Directorate’s prosecution complaint.
  3. That 12 out of 17 cited witnesses in the prosecution complaint dated 6-2-2021, 9 out of 14 witnesses cited in the supplementary complaint dated 6-5-2022 and 5 out of 9 witnesses cited in the combined prosecution complaint dated 18-11-2022 are from Kerala/South India.
  4. That the petitioner was lawfully remanded to custody by the learned Special Judge, Ernakulam under Section 167(2) of the Code and hence, the filing of the prosecution complaint at Lucknow is impermissible.

The Court referring to previously passed judgment in Rana Ayyub case16, held that offence of money laundering has various components and is split into various processes and activities. The place of acquisition of PoC, may be different from the place of their possession, which may be further different from the place of their concealment and thus, offence may be committed at different places. Therefore, irrespective of where the FIR relating to scheduled offence was filed and registered; irrespective of which court took cognizance of the scheduled offence, the territorial jurisdiction of (Special Court, the PMLA) should be decided with reference to the place/places where any one of the activities/processes which constitute the offence under Section 3 took place.

The Court then referred to places where the cause of action arose under the complaint filed by the ED, wherein it was stated that arrest of various accused persons viz. two Popular Front of India (PFI) members along with improvised explosive devices, pistols and cartridges were seized at Lucknow. It was therefore held that (Special Court, the PMLA) cannot be said in lacking territorial jurisdiction to entertain the complaint. In any case, the lack of jurisdiction of a court cannot be a ground to order its transfer, a congenital defect of lack of jurisdiction assuming that it exists, inures to the benefit of the accused and hence it need not be cured at the instance of the accused to his detriment.

On the other ground on which transfer was sought viz. 7 out of 10 accused persons were residents of Kerala, it was held that such cannot be ground for transferring the trial from Lucknow to Kerala. Merely, because the petitioner was remanded to custody by the Special Judge at Ernakulam under Section 167(2) CrPC, does not render the complaint filed at Lucknow impermissible. The NIA had moved an application under Section 167 CrPC before Ernakulam Court for grant of custody to ED for a period of 14 days. An order under Section 167(2) had to be passed necessarily by the Magistrate to whom an accused person is forwarded, whether he has or has no jurisdiction to try the case. Therefore, the argument revolving around Section 167(2) of the Code was also rejected. Accordingly, it was held that the Special Court at Lucknow was well empowered to proceed with the complaint and prosecution launched by the ED against the accused persons, petitioners before the court and the transfer petition was dismissed.

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(5) M. Sivasankar v. Union of India17

(Delivered on 13-4-2023) (Kerala High Court)

Coram: Single Judge Bench of Justice A. Badharudeen

Authored by: Justice A. Badharudeen

The petitioner was prosecuted by Vigilance and Anti-Corruption Bureau, Kerala for various offences under the Prevention of Corruption Act, in relation to which FIR was registered by CBI as well under the provisions of the Foreign Contribution Regulation Act (FCRA), 2010. It was alleged that pecuniary advantage and illegal gratification was obtained by the accused out of the funds received from United Arab Emirates (UAE) Red Crescent meant for flood victims in Kerala through “life mission project”. For awarding of the said project to the company of UAE, bribe was received, payable prior to execution of the project. After receiving the said bribe in foreign currency, it was routed through diplomatic channels and because the petitioner had close good relations with the erstwhile Chief Minister of Kerala, he was able to acquire the entire said amount.

The bail application was preferred on the grounds of the medical condition of the applicant accused. It was further contended that the petitioner had been roped in, on the basis of confessional statements of the co-accused persons, which are inadmissible and thus cannot be treated as trustworthy enough to assume culpability of the petitioner for declining bail by applying twin conditions under Section 45 of the PMLA.

On the issue of medical condition of the applicant, the Court found that petitioner had himself refused to undergo surgery and was thus misrepresenting full facts before the High Court. Interpreting the word “sick” or “infirm” as occurring under Section 45 of the PMLA, it was held that the said condition of the person of sickness or infirmity must be ascertained from the materials available in each individual case as to whether it is of such gravity and nature to handicap and disable the person from even sustaining himself. The release of a person covered by proviso to Section 45(1) of the PMLA is not mandatory and same is the discretion of the court. The Court referred to three judgments in the said regard viz. State v. Jaspal Singh Gill18; State of U.P. v. Gayatri Prasad Prajapati19 and Enforcement Directorate v. Ashok Kumar Jain20.

It was further held that the investigatory authorities cannot be required to subject the exercise of interrogation to the opinion of the cardiologist or the Medical Board. That would amount to impairing the efficient functioning of investigatory authorities under respective enactments, especially when the Court is dealing with pre-arrest bail. It was further held that if the authorities are adopting adequate measures to prevent deterioration of the accused’s health during the period of custodial internment, then the Court may not interfere. Referring to the judgment of Surjeet v. State (NCT of Delhi)21, it was held that if a good treatment can be offered within the jail premises or at the behest of the jail administration, then grant of bail on medical grounds becomes unwarranted. Thus, even a sick person need not be released on bail, if the jail authorities or prosecuting agency could arrange proper and adequate treatment. This is more so when the petitioner is stated to be proximate to the ruling dispensation and the Chief Minister. There is a larger risk of the witnesses being influenced and prejudicially tutored to oppose the prosecution case. Since, the allegations against the petitioner were serious of rooting foreign exchange and foreign currency in the Indian market and converting the nature of the same from tainted to untainted, therefore there was material to infer his involvement in serious crimes. Accordingly, the bail application was dismissed by the High Court.

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(6) Sanjay Raghunath Agarwal v. Enforcement Directorate22

(Delivered on 20-4-2023) Supreme Court (SC)

Coram: 2-Judge Bench of Justices V. Ramasubramanian and Pankaj Mithal

Authored by: Justice Pankaj Mithal

Allegation against the petitioner in the predicate offence was that one Pharmax India Private Limited availed the services of the accused in raising global depository receipts (GDRs). Though the amount was raised by the accused in huge quantities, however, only a miniscule sum was transferred to Pharmax. It was discovered that the accused had misappropriated the balance amount by forging of signatures with the help of pledged documents. Thereafter, Securities and Exchange Board of India (SEBI) also discovered serious violations of provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) (Pfutp) Regulations, 2003 and recommended for registration of FIR against all those involved in such unfair practices and dealing of securities. Thereafter, on the basis of the same, ECIR came to be registered by the ED and the appellant was arrested. It was alleged by the ED that appellant was responsible for creating the entire infrastructure for Pharmax and Arun Panchariya to bring about fraudulent GDR’s in existence for being issued and it was his planning to get the funds transferred from the account of Pharmax to its subsidiaries. To the contrary, the accused argued that the main complainant at whose incidence FIR was registered way back in 2013 was also arrested by ED, but his application for remand was rejected by the court. Appellant is a Chartered Accountant by profession and he had offered only his professional services within the framework of law and nothing exists in the prosecution complaint to show that he is in possession of the PoC.

The Court found after analysing the contents of the complaint that registration of ECIR and lodging of the prosecution/complaint in 2022 was a sequel to registration of FIR for the predicate offence way back in 2013 at the instance of N. Sreenivas Reddy, MD of Pharmax India Private Limited. No final report has been filed in the FIR for the predicate offence for the past 9 years and even the de facto complainant (Sreenivasa Reddy) was sought to be arrested by the ED, but the application for remand was rejected. The second condition under Section 45 of the PMLA gets satisfied in view of the contents of complaint filed by the ED. Accordingly, the accused appellant was enlarged on bail, however after depositing his passport before the Special Court. Accordingly, the bail was granted to the petitioner by the Supreme Court.

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(7) Anoop Bartaria v. Enforcement Directorate23

(Delivered on 21-4-2023) Supreme Court (SC)

Coram: 2-Judge Bench of Justices Ajay Rastogi and Bela M. Trivedi

Authored by: Justice Bela M. Trivedi

The challenge was laid to judgment of the Rajasthan High Court that had dismissed the writ petition challenging the ECIRregistered by the ED, Jaipur as also restraint on any coercive action against them. The petitioner stated themselves to be a leading and an awarded engineer/architect having an experience in providing structural, architectural and design consultancy services being the MD of a leading company World Trade Park. The company is engaged in the business of selling and leasing commercial places to various interested buyers. One FIR came to be registered by the CBI, New Delhi against Mr Bharat Bomb for defrauding the banks and diverting the funds received through loan amounts from various banks. Followed by the FIR by the CBI, the ED initiated investigation for the offence of money laundering under the PMLA. The petitioners thus argued that they were neither named in the FIR registered by the CBI, nor were ever named in the ECIR registered by the ED. However, in the prosecution complaint that came to be filed, petitioners were falsely implicated without the offence being made out against them. It was argued that offences under the PMLA are non-cognizable, resultantly the entire investigation carried out by the ED was without any authority of law. They were never connected to Mr Bomb, who was the main culprit and accused person.

The Court after examining the amendment of August 2019 to the PMLA, specifically the Explanation clause to Section 45 stated that offences under the PMLA have been converted to being cognizable and non-bailable, from being treated as non-cognizable earlier. The officers authorised under the PMLA are therefore empowered to arrest an accused without warrant, subject to fulfilment of conditions under Section 19 dealing with the power to arrest and subject to the conditions enshrined under Section 45. The Court also repelled the arguments of the petitioners that they were nowhere connected with Mr Bomb and returned a finding that direct involvement of the petitioner in the activities connected with the PoC had been alleged, supported by materials narrated in the complaint, that would require a trial to be conducted by the competent court. Since, there was an existential enough material to show prima facie involvement of petitioner in the alleged offence of money laundering, the petitions were rightly dismissed by the High Court for quashing the very trial itself. Accordingly, the special leave petitions (SLPs) were dismissed.

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(8) Y. Balaji v. Karthik Desari24

(Delivered on 16-5-2023) Supreme Court (SC)

Coram: 2-Judge Bench of Justices Krishna Murari and V. Ramasubramanian

Authored by: Justice V. Ramasubramanian

The necessary facts leading to SLP were that advertisements inviting applications for appointment to various posts such as drivers, conductors, junior tradesmen, etc. were issued. It was alleged that certain middlemen raised huge amounts in the name of offering appointments to gullible candidates, with the involvement of PA to the Transport Minister, Mr Senthil Balaji. The parties thereafter compromised and certain cases out of many cases came to be compounded and closed. There were 12 appeals before the Supreme Court, 4 of them challenging the quashing of summons issued by ED, 6 of them challenging the order of de novo investigation, 1 challenging the order permitting ED to have inspection of documents, and the last one arising out of the order refusing to grant further time for completion of investigation. Accordingly, the Court divided the batch of SLPs into various issues. The second and the third issues are the relevant, which were dealing with the challenge to the order setting aside summons issued by ED and the order permitting ED to have inspection of the records of the trial court.

The arguments relating to legality of the summons issued by ED were zeroed down on certain broad issues:

  1. ED did not have the requisite foundational material when the ECIR was registered as admitted in their own counter-affidavit and that there was no explanation on the part of the ED for such delay in registration of offences under the PMLA, when the FIR in predicate offence came to be registered in December 2014 and January 2015.
  2. In view of inherent contradictions contained in decision of Vijay Madanlal Choudhary case25, the appeals on hand were liable to be referred to larger Bench and thus, for want of existence of a jurisdictional fact as a condition precedent for the exercise of powers by the ED, the ECIR was never maintainable. Reference was made to the judgments of Shauqin Singh v. Desa Singh26 and Arun Kumar v. Union of India27, for the said proposition. It was further stated that since petition for review has been entertained by the Supreme Court of the judgment of Vijay Madanlal Choudhary case28, and certain questions of law having been referred to larger Bench, all subsequent matters should be tagged or deferred. Thus, all subsequent actions like a pack of cards should fall. Reliance was placed on the latin maxim “sublato fundamento cadit opus” meaning that “if initial action is not in consonance with law, all subsequent and consequential proceedings fall through”.
  3. Whether, without identifying the PoC or a property representing the PoC and without identifying any process or activity connected to PoC as required by Section 3, which constitute the foundational/jurisdictional fact, ED can initiate an investigation and issue summons?
  4. Whether, in the light of the fact that notice has been ordered in the review petition and a few interim orders have been passed in some proceedings, is it necessary for this Court to tag these appeals along with a review petition or defer the hearing of these matters until a decision is rendered in the review petition and other petitions?

Answering the aforementioned issues, referring to the judgment of Central Board of Dawoodi Bohra Community v. State of Maharashtra29, the Court held that “a Bench of lesser coram cannot express disagreement with or question the correctness of the view taken by a Bench of larger coram”.

On the first issue, as to whether without identifying the proceeds of crime or a property representing the PoC and without identifying any process or activity connected to PoC as required by Section 3, which constitute the foundational/jurisdictional fact, can ED initiate an investigation and issue summons, it was argued that mere registration of a FIR for a predicate offence cannot trigger registration of crime by the ED followed by issuance of summons was the argument of the petitioners. The Court whilst repelling the argument dissected Section 3 forensically and held that it addresses 3 P’s, namely: (i) person; (ii) process or activity; and (iii) product. Section 3 identifies PoC as a product of the process or activity. The molecular structure of Section 3 was held to mean that the product is of the process or activity specified under Section 3. It is no rocket science to know that a public servant receiving illegal gratification is in possession of PoC. Therefore, mere generation of PoC being not sufficient to constitute the offence of money laundering is a preposterous argument. If a person takes a bribe, he acquires PoC. Post acquisition of said PoC, even if he does not retain it, but “uses” it, he is guilty of the offence of money laundering. The FIRs for the predicate offences in question identified all the three components of Section 3, the three P’s as aforementioned. The corruption money represents the PoC. The Court further held that not all offences may generate PoC, like the offence of murder under Section 302 IPC. In respect of such offences, it can possibly be argued that mere commission of the crime is not sufficient, but the generation of PoC must also be established. Therefore, even if an intangible property is derived as a result of the criminal activity relating to scheduled offence, it becomes PoC under Section 2(1)(u). The information about all the complaints, nature of them, amount of money being allegedly collected towards illegal gratification had all come into public domain. Thus, it could not have been said that ED indulged into fishing expeditions, triggering the investigation without any informational facts. The fact that ED applied for certified copies of the various documents meant that ED intended to have authenticated copies of such documents and nothing more. Rather, ED was under a duty to register ECIR, when the factum of acquisition of such huge amounts of illegal gratification in the matter of public employment came into its knowledge. The contention of the petitioner accused persons is self-serving argument, when it states that ED had no bona fides in registering ECIR after such a delay post registration of FIRs in predicate offence. A long rope was given from 2016 to 2021 by the ED to the accused person so that the necessary information can be collected.

On the second issue of pendency of review petition of the judgment of Vijay Madanlal Choudhary case30, it was held that review petition was entertained and notices, so issued were limited to two issues and the arguments of the accused in the SLPs before the Court had nothing to do with either of the issues on which the review petition was entertained. Therefore, the accused cannot have a piggyback ride on the review petition. Since, the accused persons themselves have not come up in any SLP independently challenging the judgment of the High Court, therefore they are not entitled at all either to seek a reference with the larger Bench or to seek to defer the matter till the decision is rendered in the matters involving larger issues.

On the third issue, about permission to ED to inspect the records of Special Court trying the predicate offence, it was held that ED had filed applications for authenticated and certified copies of various documents pertaining to predicate offences only after registration of ECIR. It was held that the High Court had simply permitted the ED to have inspection of the documents under Rule 237 of the Criminal Rules of Practice, 2019, followed by a proper copy application. Therefore, the said contention was also baseless. It was further held that the power to grant permission for further investigation vests with the Magisterial Court under Section 173(8) and the same could be granted if found necessary by the lower court. Therefore, even if the High Court rejected prayer for grant of further time to complete the investigation, the investigating authority always had the liberty to proceed under Section 173(8) CrPC.

Accordingly, all the appeals were disposed of with the aforementioned directions.

*           *           *

(9) Sanjay Jain v. Enforcement Directorate31

(Delivered on 5-6-2023) Delhi High Court (DHC)

Coram: Single Judge Bench of Justice Vikas Mahajan

Authored by: Justice Vikas Mahajan

The present petition involved enlargement of the petitioner on regular bail on the grounds of deteriorating health, medical and physical condition. Various ailments were stated to have been gripping the petitioner, on which ground bail was sought. It was argued that he required urgent diagnostic and even surgical intervention and since, requisite medical treatment required immediately was not being provided, therefore he was entitled to be enlarged on anticipatory bail. Reliance was placed on the judgment of Vijay Agrawal v. Enforcement Directorate32.

The Court whilst considering the said bail application, referring to the judgment of Kewal Krishan Kumar v. Enforcement Directorate33, held that amending provisions of Section 45 of the PMLA must be purposively interpreted, for showing leniency towards sick or infirm person. For the said purpose only, the proviso to Section 45(1) of the PMLA creates an exception which empowers the Special Court to grant bail on humanitarian grounds to a person, under the age of 16 years or a woman or a sick or an infirm person. The twin conditions under Section 45 of the Act shall cease to apply to such special category of persons. However, merely because there is some ailment the accused is suffering from, does not warrant him to be released on bail, but what must be seen is whether required treatment can be provided by the jail authorities. Only in those specialised cases of sustained treatment, where extreme care is necessary, not otherwise possible in jail, then only the petitioner is entitled to the benefit of proviso to Section 45(1). In the present case also, there was no expert opinion on record suggesting the pressing urgency for the petitioner to undergo coronary angiography or such special surgical operations mentioned by the petitioner. Accordingly, the court constituted a Medical Board to evaluate the medical condition of the petitioner by constituting specialised team for the said purpose and directed the said Medical Board to submit a report about the urgency and the need for the petitioner to undergo coronary angiography and to what extent life of the petitioner is imperilled owing to such delay in treatment.

*           *           *

(10) Preeti Chandra v. Enforcement Directorate34

(Delivered on 14-6-2023) Delhi High Court (DHC)

Coram: Single Judge Bench of HM Justice Jasmeet Singh

Authored by: HM Justice Jasmeet Singh

The matter related to grant of bail in complaint case filed by the ED. The applicant is the wife of Sanjay Chandra, Director of Unitech Group. The applicant pleaded benefit of exemption from applicability of twin conditions stipulated under Section 45 of the PMLA, being a 49 years old lady and having two children. The applicant stated herself to be in custody since 4-10-2021. The allegation against the petitioner was that PoC to the tune of Rs 380.08 crores was generated by diverting funds from homebuyers from the accounts of Unitech Group and various other companies as inter corporate deposits, in which the applicant was a director and was throughout present at the time of passing the resolutions and transactions relating to PoC.

It was contended that the twin conditions under Section 45 shall not be applicable to the petitioner being a woman. A person dealing with financial transactions cannot know at the outset that funds involved in the financial transaction are PoC.

It was further argued that the triple test evolved in Anil Mahajan v. Commr. of Customs35, of the petitioner not having a flight risk and other tests were duly met in case of applicant. The applicant had duly cooperated with the investigating agency, whenever asked to appear through summons, provided all the documents and thus was entitled to be granted bail.

On the first issue of applicability of twin conditions under Section 45 of the PMLA to a woman, being entitled to relaxation, it was held relying on the judgment of P. Ramachandra Rao v. State of Karnataka36, that beneficial legislation in favour of a particular class of person should not be considered narrowly, but be given a liberal interpretation. Thus, creating an ad hoc illusory sub-classification of educated woman, business woman, woman belonging to high social strata within the broader classification of woman is misconceived. The Court is not empowered to further sub-classify women into different categories and apply the twin conditions of Section 45 to some categories of women, whilst excluding others. That would be doing violence with the plain intention of the legislature. Relying on the judgment of the coordinate bench in Komal Chadha v. SFIO37, it was held that once a person comes within the exception to proviso to Section 45(1), then he is entitled to benefit of the same. Thus, once the accused is a woman, proviso to Section 45(1) kicks in and the applicant would be entitled to exemption from the benefit of the same.

On the second issue of being granted bail in predicate offence, referring to the judgment of Vijay Madanlal Choudhary case38, it was held that whether the applicant knew that she was dealing with PoC and whether the same was actually a tainted money, can only be ascertained after evidence has been led and not before. Nothing, no evidence or material has been placed on record to show that applicant being a lady was involved in the day-to-day affairs of Mayfair, Prakausali and other groups of Unitech companies or its subsidiaries. A mere fact that applicant was a director in Prakausali cannot lead to an inference that she had knowledge that funds being infused in these companies, where she was a director and if they were PoC, the knowledge about the same in possession of the petitioner can be ascertained only after leading of evidence. In order to prove mens rea, the prosecuting agency must show something more than merely an allegation. There is a prima facie satisfactory explanation crystalling into substantial defence being offered by the applicant to such allegations and thus regarding such allegations, it can be prima facie believed that she is not guilty of the offence of money laundering. Similarly, in some of the companies, even though the applicant was a director, however the affairs of the same were being handled entirely by the Chandra brothers and till and until explicit material pertaining to participation of the applicant in the said meetings is produced, applicant cannot be presumed to be privy to it. Since, all the documents are already in the custody of ED, the possibility of the applicant tampering with the evidence or influencing the witnesses is clearly ruled out. Accordingly, the Court through a detailed judgment granted bail to the petitioner.

*           *           *

(11) Saumya Chaurasia v. Enforcement Directorate39

(Delivered on 23-6-2023) Chhattisgarh High Court (CG HC)

Coram: Single Judge Bench of HM Justice P. Sam Koshy

Authored by: HM Justice P. Sam Koshy

The matter concerned grant of bail under Section 439 CrPC to the petitioner in relation to offences under Sections 3 and 4 of the PMLA, 2002. The petitioner claimed the benefit and advantage of being a woman and thus, covered by the exception in engrained under proviso to Section 45 arguing that twin conditions for grant of bail shall not apply in her case.

Petitioner was the officer of State Civil Services in the State of Chhattisgarh working as officer on special duty (OSD) to Chief Minister (CM). It was alleged that she had actively associated with main accused Suryakant Tiwari to amass ill-gotten wealth and money by charging commissions from coal miners, transporters in the State of Chhattisgarh. She used to receive kickbacks for awarding of contracts of different natures to people of their choice on extraneous considerations and the misuse of official position, engaging herself in collection of huge amounts of illegal wealth from persons/businessmen/bureaucrats.

The Court after examining the entire material found substantial material indicating a strong nexus between the appellant and the other accused person in the commission of the crime of money laundering. There were documents and evidences that reflected numerous cash transactions operated by the main accused, Suryakant Tiwari. The applicant was thus not only a party, but was the kingpin, being involved in the extraction of illegal wealth and also in all the subsequent activities connected with the PoC under Section 2(1)(u) of the PMLA. Accordingly, the Court held that merely because Section 45 carves out an exception does not mean that applicant automatically would be entitled for bail as a matter of right. Referring to Section 437 CrPC, it was held that similar exceptions were carved out there as well for a woman, which however do not make it mandatory for the court to grant bail to accused being a woman. The gravity and magnitude of the economic offence on the question warranted a strict view to be taken of in the grant of bail. Accordingly, the bail application of the petitioner accused was rejected.

*           *           *

(12) Eastern Institute for Integrated Learning in Management University v. Enforcement Directorate40

(Delivered on 27-6-2023) (Sikkim High Court)

Coram: Single Judge Bench of HM Justice Bhaskar Raj Pradhan

Authored by: HM Justice Bhaskar Raj Pradhan

The issue before the Court was whether judgment passed earlier by the Single Bench must be modified in view of a modification application moved on behalf of the Enforcement Directorate. The show-cause notice issued under Section 8 of the PMLA was challenged earlier on the ground that the Bench constituted under Section 6(5)(b) for deciding the validity of the said show-cause notice did not have a Judicial Member. The Single Bench after hearing all the parties to the writ petition and examining Sections 6(5)(a) and (b) held that since vital questions of law and fact arise in cases before it, therefore one of the members of the Bench constituted under the said provision must be a Judicial Member. The adjudicating authority cannot adjudicate upon the show-cause notices with only technical/administrative members presiding over the Bench. Accordingly, following directions were issued by the learned Single Judge to the ED in the aforesaid writ petition:

1. To take appropriate steps with the authorities concerned of the Central Government for appointment of Judicial Member of the adjudicatory authority urgently within a period of three months and not later than that.

2. On appointment of the Judicial Member the Chairman of the adjudicatory authority to constitute the Bench consisting of a Judicial Member keeping in view the observations made having regard to the nature of the lis and the anxiety expressed by Eastern Institute for Integrated Learning in Management (EIILM) University.

3. Soon after it is constituted, the Bench to then issue notice upon EIILM University who shall appear before the Bench and place before it all grievances expressed in the petition.

4. Since, the proceedings before the adjudicatory authority was stayed by this Court by order dated 2-4-2015, the period of attachment prescribed under sub-section (1) of Section 5 to exclude the period spent during the pendency of the case before this Court.

Post issuance of the aforesaid directions, an application for modification/clarification was filed on behalf of the ED seeking modification of the judgment passed earlier dated 22-9-2015, after nearly 8 years on 8-11-2022, which was the subject-matter of consideration in the present judgment. The clarification which was sought was as to whether a Judicial Member and member from the field of law of the adjudicating authority under Section 6(3)(a) of the PMLA, 2002 are one and the same. The clarification was moved on the ground that the Central Government had already published a notification in the Gazette, vide which one member from the field of law had already been appointed as member of the adjudicating authority. Thereafter, the adjudicating authority with the said member from the field of law (not Judicial Member as per the direction of High Court) heard the matter and through its order dated 1-12-2015 confirmed the attachment order dated 9-1-2017. The Appellate Tribunal established under the PMLA thereafter remanded the matter for rehearing and reconsideration by the adjudicatory authority, on the ground that the hearing was not affected by a Bench comprising Judicial Member and thus, it was in the teeth of judgment of the High Court. Thereafter, Mr Tushar Visha, member from the field of law (again not a Judicial Member) heard the matter and confirmed the attachment, vide its order dated 26-5-2017. Again, the matter was heard and remanded by the Appellate Tribunal on the ground that the Government despite directions of the High Court has not appointed the Judicial Member and therefore orders passed by the adjudicating authority of provisional attachment are not sustainable.

The Court held that reading of the judgment passed earlier dated 22- 9-2015 makes it clear that it was precisely the case of the petitioner that adjudicating authority cannot have a Bench without a Judicial Member and the said lis was decided through a reasoned judgment. The said judgment dated 22-9-2015 had not been appealed against and therefore even modification/clarification of the said judgment was not maintainable, much less when it is disguised as review or revision of the judgment. Referring to the judgment of Indian Council for Enviro-Legal Action v. Union of India41, and referring to the judgments of Indian Council for Enviro-Legal Action case42 and Ghanashyam Mishra & Sons (P)Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.43, it was held that such modification applications are a total abuse of the process of law, wherein indirectly review is being sought of the orders passed by the Supreme Court or the constitutional courts by filing applications seeking modification or clarification of orders passed by it. Accordingly, the said application was rejected as evidently a device to revisit, reopen and review the earlier judgment dated 22-9-2015. The High Court rejected the said application as an abuse of process of the court.

*           *           *


*Practising Advocate at the Supreme Court of India. Expert in Constitutional, Civil and Securitisation Laws.

1. This is Part I of III

2. (2023) 1 HCC (Del) 399 : 2023 SCC OnLine Del 336.

3. (2014) 9 SCC 614.

4. (2014) 9 SCC 614.

5. 2018 SCC OnLine Del 11078.

6. 2022 SCC OnLine SC 929.

7. 2018 SCC OnLine Del 11078.

8. (2023) 4 SCC 357.

9. (2020) 10 SCC 92.

10. 2023 SCC OnLine All 58.

11. (2022) 13 SCC 764.

12. (2021) 10 SCC 773.

13. (2022) 13 SCC 764

14. (2021) 10 SCC 773.

15. (2023) 6 SCC 92.

16. (2023) 4 SCC 357.

17. 2023 SCC OnLine Ker 2228.

18. (1984) 3 SCC 555.

19. (2022) 15 SCC 515.

20. (1998) 2 SCC 105.

21. 2021 SCC OnLine Del 228.

22. 2023 SCC OnLine SC 455.

23. 2023 SCC OnLine SC 477.

24. 2023 SCC OnLine SC 645.

25. 2022 SCC OnLine SC 929.

26. (1970) 3 SCC 881.

27. (2007) 1 SCC 732.

28. 2022 SCC OnLine SC 929.

29. (2023) 4 SCC 541.

30. 2022 SCC OnLine SC 929.

31. (2023) 4 HCC (Del) 156 : 2023 SCC OnLine Del 3519.

32. 2022 SCC OnLine Del 4494.

33. 2023 SCC OnLine Del 1547.

34. (2023) 3 HCC (Del) 1 : 2023 SCC OnLine Del 3622.

35. 2000 SCC OnLine Del 119.

36. (2002) 4 SCC 578.

37. 2022 SCC OnLine Del 4543.

38. 2022 SCC OnLine SC 929.

39. 2023 SCC OnLine Chh 1907.

40. 2023 SCC OnLine Sikk 64.

41. (2011) 8 SCC 161.

42. (2011) 8 SCC 161.

43. (2021) 9 SCC 657.

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