Landmark Judgments on Prevention of Money-Laundering Act by the Supreme Court and High Courts in 2024 (Part – I of III)

The present article attempts to cover all the important and landmark judgments delivered by the Supreme Court and High Courts of the country, on issues arising out of the Prevention of Money-Laundering Act, 2002.

The present article attempts to cover all the important and landmark judgments delivered by the Supreme Court and High Courts of the country, on issues arising out of the Prevention of Money-Laundering Act, 2002 (PMLA). The judgments from January to May 2024 are covered in this part, which are as follows:

Abbreviations for various common terminologies in the judgments

Art. — Article	Assn. — association
BSL — Bhushan Steel Limited	CG — Central Government
CB — Constitution Bench	CBI — Central Bureau of Investigation
COI — Constitution of India	Co. — company
Commr. — Commissioner	CrPC — Criminal Procedure Code, 1973
CIRP — corporate insolvency resolution process	CJM — Chief Judicial Magistrate
DB — Division Bench	ECIR — Enforcement Case Information Report
ED — Enforcement Directorate	Govt. — Government
HC — High Court	IPC — Penal Code, 1860
IO — investigating officer	JB — Judge Bench
IT Act — Information Technology Act, 2000	IBC — Insolvency and Bankruptcy Code, 2016
KSBL — M/s Karvy Stock Broking Limited Bracket	Ltd. — Limited
ML — money laundering	MLA — Member of Legislative Assembly
NBWs — non-bailable warrants	NDPS — Narcotic Drugs and Psychotropic Substances Act, 1985
NCLT — National Company Law Tribunal	Pvt. — Private
PAO — provisional attachment order	P&H — Punjab and Haryana
PO — Presiding Officer	PCA — Prevention of Corruption Act, 1988
POC — proceeds of crime	PMLA — Prevention of Money-Laundering Act, 2002
PDJ — Principal District Judge
SL — State Legislature	SFIO — Serious Fraud Investigation Office
SC — Supreme Court	SB — Single Bench
r/w — read with	Sec. — Section
u/s — under Section	UOI — Union of India
v. — versus
Vijay Madanlal judgment — Vijay Madanlal Choudhary v. Union of India1	WP — writ petition
w.e.f. — with effect from	WA — writ appeal

The judgments are as follows:

(1) Neeraj Singal v. Enforcement Directorate²

(Delivered on 8-1-2024)

Coram: Single Judge Bench of HM Vikas Mahajan, J.

The petitioner, who was one of the Managing Directors of Bhushan Steel Limited (for short, “BSL”), approached the High Court, challenging the legality of his arrest, being in gross violation of Section 41-A(3), Criminal Procedure Code read with Section 19 PMLA; the petitioner also challenged all the subsequent and consequential actions, including the remand order passed by the Special Judge (PMLA) as null and void and accordingly sought setting aside of the same.

Factual matrix of the case

The petitioner as the businessman and Managing Director of BSL was accused of being involved in one of the biggest banking frauds coupled with the offence of money laundering by illegitimate acquisition of loan funds in the name of his company. BSL and other group companies and thereafter laundering the said loan funds in a web of more than 150 companies all under his ownership. The petitioner was alleged to have caused loss of more than Rs 46,000 crores to the public, in relation to which Serious Fraud Investigation Office (for short, “SFIO”) had also filed a complaint under various provisions of the Companies Act read with the Penal Code, 1860.

The petitioner contended that he had duly cooperated with the investigation being carried out by the Enforcement Directorate (for short, “ED”) and supplied all the necessary documents whichever whenever were demanded from him. When he could not respond to one of the summonses of the ED, he was arrested from his residence by the ED officers at 10.25 p.m. on 9-6-2023. He was produced before the Special Judge (CBI) on 10-6-2023, whereafter he was remanded for 10 days of police custody.

Submissions of both the contesting parties

The petitioner essentially contended that whereas his arrest was made on 9-6-2023, intimation to the adjudicating authority was given 3 days thereafter on 12-6-2023; the grounds of arrest were neither served upon him in writing, nor orally even showed to him and thus mandate of Section 19(1) PMLA stood violated; it further contented that at a time of arrest, the panchnama was got signed by the officers of the ED on blank paper from the petitioner, whereafter the “grounds of arrest” were mentioned in the said document without being shown to the petitioner. The ”arrest order” was actually executed at a different location and not at the place of arrest, in view of various discrepancies so pointed out in the document pertaining to grounds of arrest and the arrest order prepared by the respondent ED.

The ED on the contrary contended that the date on which arrest of the petitioner was effected, the law as laid down by the Delhi High Court in Moin Akhtar Qureshi v. Union of India³, was governing the field, which held that sufficient compliance of Article 22(1) happens if the written grounds of arrest are shown to the accused or informed orally, even if not communicated in writing to the petitioner. The ED had further contended that the petitioner had made contradictory pleadings pertaining to showing an oral information about the grounds of arrest by the ED to him and had not objected before the Remand Court at the time of being remanded to police custody, when in the remand order, the Special Court has mentioned that the petitioner has been shown/orally informed of the grounds to him. In view of the contradicting pleadings and the law down by the Supreme Court governing the field, it was not necessary to supply the grounds of arrest in writing to the petitioners, but oral intimation and communication of the same was sufficient enough to make the rigours of Article 22(1) of the Constitution of India.

Consideration by the Court of various contentions

The Court firstly traced the applicability of mandatory requirement of supplying the grounds of arrest in writing to the petitioners by the ED before arrest in view of various pronouncements of the Supreme Court. Referring to the two judgments of V. Senthil Balaji v. State⁴ and Pankaj Bansal v. Union of India⁵, Court reiterated that written communication of grounds of arrest is mandatory to be effected by the ED at the time of arrest. However, in the Pankaj Bansal case, the Supreme Court observed that informing the arrested person of the grounds of arrest in writing would be necessary “henceforth”. The phrase “henceforth” regarding the prospective or retrospective applicability of the law laid down in the Pankaj Bansal case arose in Ram Kishor Arora v. Enforcement Directorate⁶, wherein the Supreme Court held that the mandatory requirement of furnishing grounds of arrest in writing to the arrested person as soon as after his arrest was not mandatory or obligatory till the date of pronouncement of the said judgment and accordingly, non-furnishing of the grounds of arrest in writing till the said date (i.e. the date of Pankaj Bansal judgment) could neither be held to be illegal nor action of the officer concerned in not furnishing the same in writing could be faulted with. The judgment of Ram Kishor Arora case further interpreted Section 19 PMLA, whilst relying upon the Vijay Madanlal judgment to hold that the expression “as soon as may be” under Section 19 PMLA must be construed as — “as early as possible without avoidable delay” or “within reasonable convenient” or “reasonably requisite” period of time. This would be the information about the grounds of arrest to the arrestee within 24 hours of the arrest. Thus, the written grounds of arrest could be communicated even after effecting the arrest within 24 hours of the said arrest.

Accordingly, the Court held that there was no cavil of doubt that the requirement of supplying/furnishing the written grounds of arrest was not attracted in the present case since admittedly the arrest of the petitioner was effected prior to the judgment of Pankaj Bansal case. Insofar as contention regarding absence of furnishing of information by being either communicated orally or shown to the petitioner, Court held that the document of arrest was signed by two independent witnesses being informed and shown at the time of arrest of the petitioner. The signing of the said document by two independent witnesses lends credence to the whole process of arrest and no provision of law had been pointed to the Court which required each page of “ground of arrest” to be signed by the petitioner. Merely because each page of the “ground of arrest” was not signed by the petitioner cannot be reason to disbelieve the existence of the said document, or to negate the fact that grounds of arrest was shown to the petitioner. The panchnama of arrest was also signed by the wife of the petitioner as a token of acknowledgement of having been informed the grounds of arrest. This panchnama had never been disputed at any stage by the petitioner, being endorsed by his wife as well. Mere typographicals in the arrest order with regard to the place of arrest or time of arrest cannot lead to the presumption that the arrest was initiated.

Referring to Section 114(e), Evidence Act, 1872 and the judgment of the Supreme Court in Devender Pal Singh v. State (NCT of Delhi)⁷, the High Court stated that there is always a statutory presumption under Section 114, Evidence Act that judicial and official acts have been regularly performed and legitimately done. The said presumption applies as much in favour of a police officer performing his duty as in case of other persons and it is not a judicial approach to distrust and suspect police officers without good grounds therefore.

The Court also found that the petitioner had not objected to the Remand Court observing he had been provided with the grounds of arrest, the same having been duly signed by him and counter signed by two independent witnesses, so recorded by the Court, whilst remanding him to custody. Even in the rectification application moved by the petitioner, he himself stated that the grounds of arrest “were shown” to him. Thus, the petitioner was never aggrieved by the finding in the remand order regarding the grounds of arrest being shown to him and this leads to an irrevertible presumption that the petitioner had only been the grounds of arrest to the petitioner, he had also signed on the physical copy of the same. The Court also found that the remand application filed by ED before the Special Court, when juxtaposed with the grounds of arrest, shown to the petitioner was almost identical and thus, even though the remand application the petitioners stood duly informed of all the grounds of arrest under Section 19(1) PMLA. When produced before the Special Judge within 24 hours of his arrest by the ED seeking his remand.

Insofar as the contention pertaining to delayed forwarding of the arrest order to the adjudicating authority, the Court was persuaded by the ED’s submission that since intervening days were Saturday and Sunday being holidays, in view of Section 10, General Clauses Act, 1897 when the period prescribed under the PMLA expired on the holiday, then it could have been done and executed on the next working day on which the Court or office would open. Interpreting the expression immediately occurring under the PMLA under Section 19(2), Court held that a procedure is prescribed under Rules 3(5) and (6) of the rules framed under the PMLA, prescribing the method and manner of placement of and communication of arrest order to the adjudicating authority. The said formality could have been carried out only on a working day and not otherwise. Therefore, there was no delay in forwarding a copy of the order of arrest along with the foundational/foundational material to the adjudicating authority by the ED. Accordingly, the Court repelled all the contentions grounds challenging the arrest to be illegal of the petitioner. The bail application was accordingly dismissed.

***

(2) Enforcement Directorate v. Karvy India Realty Ltd.⁸

(Delivered on 12-2-2024)

Coram: 2-Judge Bench of HM Alok Aradhe and A.K. Jukanti, JJ.

Authored by: HM Alok Aradhe, J.

The writ appeal arose from the interim order of the learned Single Judge, whereby the Single Bench quashed the provisional attachment order, also the show-cause notice issued on the basis thereof.

Factual matrix of the case

On the basis of a complaint made by HDFC Bank, first information reports (FIRs) in relation to the scheduled offence were registered against M/s Karvy Stock Broking Limited Bracket (for short, “KSBL”) and its Directors, respectively, for the offences under Section 420, Penal Code. Provisional attachment order under Section 5(1) PMLA was accordingly issued by the ED followed by a show-cause notice issued by the Union of India. The registration of FIR under the schedule offences triggered both the provisional attachment order as well as the show-cause notice.

The validity of the provisional attachment order as well as the show-cause notice was assailed essentially on the ground that a single member cannot pass an order of attachment as Section 6 PMLA contemplates the constitution of an adjudicating authority by a Chairperson along with 2 members. The adjudicating authority was not a Judicial Member and therefore the act of passing of the provisional attachment order being a quasi-judicial function could only be performed by a member experienced in the field of law.

The Single Bench referring to Section 8 PMLA held that the adjudicating authority performs a quasi-judicial function of deciding the lis between two contesting parties and therefore it should comprise members legally qualified and not those who are technical or having no experience in the field of law. The Single Bench further held that the adjudicating authority became functus officio after the lapse of 180 days if the provisional attachment order was not confirmed.

The Union of India challenged the aforesaid judgment essentially on the ground that the impugned order of Single Judge amounted to insertion and reading down of condition under Section 6(5)(b) PMLA by providing that every Bench of the adjudicating authority shall invariably have a member possessing experience in the field of law. The adjudicating authority is not a Judicial Tribunal performing the functions of the Court and therefore necessity of the presence of Judicial Members could not have been read into the aforesaid constitution of the PMLA Tribunal.

Consideration by the Court and reasoning

Referring to the Vijay Madanlal judgment, the Division Bench of the High Court reiterated that the PMLA is neither a pure regulatory legislation, nor a purely penal legislation. Framing the solitary issue posed before it as — “whether the power under Section 8 PMLA conferred on an adjudicating authority can be exercised only by a member having experience in the field of law”, High Court discussed the ambit and powers conferred upon the adjudicating authority vide Sections 6, 8, 17 and 18 PMLA, whereunder it may proceed as to why the properties not declared to be properties involved in money laundering be confiscated by the Central Government. Referring to the Constitution Bench judgment of the Supreme Court in Province of Bombay v. Khushaldas S. Advani⁹ and Abdul Kuddus v. Union of India¹⁰, Court held functions of adjudicating authority under various provisions of the PMLA are essentially quasi-judicial in nature however, the powers and functions of adjudication by the adjudicating authority have to be exercised within the four corners of the PMLA. It neither has power to decide on the criminality of offence, nor the power to impose any punishment. Referring to the Constitution Bench judgment of the Supreme Court in Union of India v. Madras Bar Assn.¹¹ and Rojer Mathew v. South Indian Bank Ltd.¹², Court held that the principle applies equally to the PMLA that whenever the traditional court is divested of its jurisdiction and the same is transferred or conferred on any analogous courts/tribunal, the qualification and acumen of such a member in the Tribunal must be commensurate with that of the court from which such an adjudicatory function is transferred.

In the present case, neither the adjudicating authority is a tribunal constituted under Article 323-A or Article 323-B of the Constitution of India, nor the adjudicatory functions performed by any court being transferred to the authority. Further the orders passed by authority are appealable under Section 25 PMLA before the appellate authority presided by a former Chief Justice of a High Court, against which further appeal lies before the High Court under Section 42. Therefore, sufficient checks and balances are already provided against any order passed by the authority under the enactment. Referring to the judgment of International Assn. for Protection of Intellectual Property (India Group) v. Union of India¹³, rendered in the context of Sections 84 and 85, Trade Marks Act, 1999, the High Court noted that the Supreme Court in the aforesaid judgment had repelled the challenge to constitution of the Tribunal with Technical Members on the ground that Technical Members are the persons having practical experience and that they cannot function without a Chairperson is unsustainable. Section 8 PMLA does not contain any condition or a provision that adjudicating authority must have a member legally qualified to perform its functions. Therefore, a construction which reduces statutory provision to futility must be avoided since words and expressions used by the legislature deserve a proper and effective meaning aligned with their purpose for which they have been enacted. The powers under Section 6 can be exercised by adjudicating authority comprising a single member also and the contention of requirement of only legally qualified member cannot be accepted. This interpretation would render Sections 6(5) and (7) PMLA nugatory and ineffective.

The High Court also referred to the view taken by Madras High Court in Pay Perform India (P) Ltd. v. Union of India¹⁴, and the Calcutta High Court in R.P. Infosystems Ltd. v. Adjudication Authority, PMLA¹⁵, in both the cases where both the High Courts have upheld the validity of various provisions of Section 6, holding that composition of adjudicating authority in the absence of judicial officer is not banned in law. The Madras and Calcutta High Courts have taken a consistent view that the adjudicating authority can comprise a single member Bench and not necessarily a two-Judge Bench.

Accordingly, the Madras and Calcutta High Court allowed appeals by setting aside the interim order passed by the Single Bench in the writ petition.

***

(3) Souvik Bhattacharya v. Enforcement Directorate¹⁶

(Delivered on 16-2-2024)

Coram: 2-Judge Bench of HM Bela M. Trivedi and Pankaj Mithal, JJ.

Authored by: HM Bela M. Trivedi, J.

The proceedings before the Supreme Court arose out of the bail application being rejected by the Special Court (PMLA). The Special Court (PMLA) on taking cognizance of the offences against the petitioner had issued summons to him under Section 61, Criminal Procedure Code. The appellant appeared before the Special Court (PMLA) and applied for bail which was rejected.

The order was challenged on the ground that the Special Court had earlier observed that the main Accused 1, 2 and 9 were already in judicial custody of the Court and there was no question of issuing any process in respect to the other 11 accused persons, which would be issued at a later stage if so required. However, despite this specific order, summons came to be issued and served upon the appellant in response to which he entered appearance and was sent to judicial custody. His bail application was also rejected by the Special Court. The primary contention of the appellant before the Supreme Court was that in the absence of any specific order summoning the appellant, the appellant could not have been taken into custody, even if the cognizance of offence was taken against him.

In short, there was no order of the Special Court formally issuing summons or warrant against the appellant. The Court expressed its surprise on how summons came to be issued when the Special Court had itself earlier observed that their custody is not necessary and if required summons will be issued at a later stage. Holding that the Special Court must always record sufficient grounds and reasons for issuing summons for the attendance of any accused or warrants in appropriate cases, the Court reiterated that if any person accused of or suspected of commission of any non-bailable offence is arrested or detained without warrant by an officer in charge of the police station or appears or is brought before the Court, he is entitled to be released on bail under Section 437, Criminal Procedure Code. Thus, the appellant could have not been arrested or taken into custody by being issued summons contrary to earlier orders. The accused applicant was accordingly directed to be released on bail by the Supreme Court by allowing the appeal.

***

(4) Sikandar Singh v. Enforcement Directorate¹⁷

(Delivered on 26-2-2024)

Coram: 2-Judge Bench of HM Arun Palli and Vikram Aggarwal, JJ.

Authored by: HM Vikram Aggarwal, J.

The petitioners approached the High Court by way of a Section 482 petition seeking quashment of the Enforcement Case Information Report registered against them by the ED and all consequential proceedings including issuance of non-bailable warrants by the Special Court against them. They also sought stay of all further proceedings pending before the Special Court and the investigation being carried in pursuance of the ECIR under challenge before the High Court.

Factual matrix of the case

A complaint was filed before the Chief Judicial Magistrate Court, Gurugram alleging commission of various offences by the petitioners against their investors in the construction business by the complainants. It was alleged that by using forged and fabricated documents, the petitioners had obtained permissions for developing a housing project, and had raised huge amounts from public funding from a large number of investors, who all were left in the lurch due to fraudulent activities of the petitioners. The Chief Judicial Magistrate, Gurugram directed registration of FIR by the police exercising powers under Section 156(3), Criminal Procedure Code followed by which the FIR came to be registered formally by the Gurugram police. This order of Chief Judicial Magistrate, Gurugram directing registration of FIR under Section 156(3) was challenged before the High Court, which initially stayed the operation of the order passed by the Chief Judicial Magistrate, Gurugram. Finally, through its final judgment, the matter was remanded by the High Court to the Chief Judicial Magistrate Court for passing a fresh order after due application of mind. However, the High Court did not set aside or quash the order passed by Chief Judicial Magistrate, Gurugram, but simply remanded for passing a fresh order.

In the meanwhile, the ED registered Enforcement Case Information Report against the petitioners and their various companies. Petitioners essentially contended that once the High Court had interfered and remanded the matter back to the Chief Judicial Magistrate, Gurugram for passing a fresh order, then the Enforcement Case Information Report registered on the premise of the said order became non est and was liable to be quashed. This submission was opposed by the ED stating that Enforcement Case Information Report once registered cannot be interfered lightly till and until the scheduled offence itself had ceased to exist. There were multiple other FIRs registered in relation to the predicate offences at the behest of various investors with allegations of cheating and forgery with submission of fake bank guarantees to the statutory authorities for obtaining licences wrongfully in respect of the housing projects. The Enforcement Case Information Report was registered only when it was found that large scale proceeds of crime were generated as a part of larger conspiracy. Funds were siphoned off so generated from the public and the investors by diverting them for non-intended purposes to group companies/personal accounts and by reflecting bogus expenditure/personal expenditure to give inflated figures. Thus, the amount of money laundering ran into hundreds of crores as per the submission of the ED. Repeated summons were issued to the petitioners, who chose not to appear or respond to those summonses before the ED.

Analysis and findings by the Court

The High Court recorded the stand of the ED that apart from the two FIRs which came to be registered on the directions of the High Court, there were multiple other FIRs also being registered and investigated against the petitioners and the companies owned by them. Further stay of proceedings in the FIR would at the highest suspend the investigation in the FIRs relating to the scheduled offence, but will have no impact on the investigation being carried out under the PMLA in relation to the Enforcement Case Information Report’s registered by the ED. Referring to the judgment of Supreme Court in Manik Bhattacharya v. Ramesh Malik¹⁸, the High Court stated that restraint order passed in a criminal matter by any court would not affect the investigation or proceedings being carried out by the ED for two reasons: Firstly, ED is not a party to such proceedings where restraint order is passed in relation to the scheduled offence; and secondly, the offence of money laundering is an independent separate offence under the PMLA wherein the accused would have independent remedies in case of violation of the statutory provisions. The issue of money laundering or the validity of the proceeds of crime has not surfaced before the Single Bench passing restraint orders in relation to the proceedings arising out of scheduled offence. More so a general blanket protective order directed at another investigating agency can never be passed insulating the petitioner from any coercive action in another proceeding started by a different agency in relation to a different offence under a different enactment of the PMLA.

Insofar as the effect of the order of remand passed by the Single Bench directing the Chief Judicial Magistrate to pass a fresh order was concerned, the High Court noted that the Single Bench never decided upon the merits of the case and left all issues open to be decided by the Chief Judicial Magistrate Court. The order was thus a non-speaking one, which despite a specific relief prayed for by the petitioner for setting aside/quashing the earlier order of the Chief Judicial Magistrate chose not to decide the same or actually set aside/quash such an order. A relief once categorically prayed for and declined impliedly by the Single Bench would be deemed to have been declined if not granted or accepted by the High Court.

On the argument that the non-bailable warrants could not have been issued in aid of investigation by the Special Court, the High Court held that admittedly the petitioners were found to be not cooperating with the ED, nor did they appear in pursuance to the summons/notices issued by the respondents. In such a case therefore the investigating agency cannot be left remediless whilst proceeding against the various accused persons. Referring to the judgment of State v. Dawood Ibrahim Kaskar¹⁹, the Supreme Court held that warrants can be issued by the Court to apprehend and ensure appearance of any person during investigation for three classes of persons viz: (i) escaped convict; (ii) a proclaimed offender; and (iii) a person who is accused of a non-bailable offence and is evading arrest. Therefore, the Supreme Court had held that powers available with the Magistrate to issue warrants to any person a warning investigation can be issued even during investigation in the context of Section 155, Criminal Procedure Code. There is no bar on issuance of warrants to an absconding accused or to an accused not cooperating with the police authorities to ensure his presence before the Court. The Magistrate otherwise also under the Criminal Procedure Code enjoys ample powers and plays an active role during investigation, like holding of a test identification parade, recording of the confession of any accused, recording of statements of the witnesses, taking a specimen handwritings, etc. However, such an appearance of the accused on the application of the investigating authorities can be only before the Court and not before the investigating authority. Referring to the judgment of Delhi High Court in Ottavio Quattrocchi v. CBI²⁰, the High Court noted that such an arrangement regarding production of accused through warrants issued by the Court will apply equally to ED under the PMLA as well. The High Court accordingly repelled the contention of the petitioner that the non-bailable warrants could not have been issued during the pendency of investigation at the behest of ED by the Special Court.

On the last contention about implication of one of the petitioners by the ED, when he was not named as an accused in the scheduled offence or being proceeded by the investigating authority in relation to the FIR registered therein, Court held that offence under Section 3 PMLA is a standalone separate offence. It is not necessary that the accused being proceeded against by the ED must be accused also in the scheduled offence. Admittedly when there were a number of other FIRs registered, the generation of proceeds of crime commonly cannot be ruled out with the involvement of the petitioner therein. At the initial stages of investigation such inferences about non-involvement of the petitioner cannot be drawn when ED is yet to conclude the whole investigation. Accordingly, the High Court dismissed the writ petitions holding that no case of interference was made out.

***

(5) V. Senthil Balaji v. Enforcement Directorate²¹

(Delivered on 28-2-2024)

Coram: Single Judge Bench of HM N. Anand Venkatesh, J.

The petitioner had filed a repeat bail application for grant of regular bail in relation to offences registered under the provisions of the PMLA against him. The earlier bail applications were rejected by the High Court, and the subsequent bail application was stated to have been filed in view of certain fresh circumstances.

Between 2011 and 2016, the petitioner was holding the position of Transport Minister in the Government of Tamil Nadu and the allegation against him was that while serving at the said position, in connivance with his relatives, personal assistants and close aides, he orchestrated collection of money by promising job opportunities in various positions within the Transport Department to large number of persons. The candidates who made the payment, but could not secure the employment lodged complaints across the State in various places, which led to registration of FIR under the scheduled offence as well as the Enforcement Case Information Report by the ED under Sections 3 and 4 PMLA.

The fresh bail application of the petitioner was filed essentially on the new grounds that he had ceased to hold the position as a Minister and therefore his political capacity to tamper with witnesses/evidence is no longer available. Investigation already stood completed by the ED and complaint had been filed before the competent court. The petitioner also questioned the probative value of various materials relied upon by the ED in its complaint, essentially the hard disks which contained various documentary entries pertaining to receipt and flow of money in relation to the complaints in question. It was further argued that the ED had relied upon statements recorded under Section 50 PMLA from the co-accused in the predicate offence and also potential suspects in the Enforcement Case Information Report so registered. Thus, these statements given by the co-accused persons cannot be relied upon at the stage of bail, but at the conclusion of the trial. The petitioner had already spent nearly 8 months in jail and thus was entitled to be enlarged on bail in view of his continued incarceration.

Discussion and consideration by the Court

The Court referring to Section 45 PMLA, as interpreted in the Vijay Madanlal judgment held that under this special enactment the principle of bail being rule and jail an exception is turned upon its head. Once any person is charged with the offences under Sections 3 and 4 PMLA, by virtue of Section 24 it is to be presumed that unless contrary is proved the proceeds of crime involved in money laundering are relatable to the accused person. Conditions enumerated under Section 45 have to be necessarily complied with in case of bail application under Section 439, Criminal Procedure Code. The petitioner was found to have received proceeds of crime to the tune of Rs 67.74 crores along with his abettors with the trial in relation to predicate offences pending at an advance stage before the Special Court.

On the contention of the petitioner assailing the authenticity of the pen drive and the hard disks, Court held that the seized items were subjected to analysis at least on four different occasions and duly examined by Tamil Nadu Forensic Science Laboratory. Out of hundreds of files, 284 files were selected and the same were analysed and the prosecution agency is always free to select the relevant files and seek the analysis report. It could not be contended that pick and choose was adopted by the ED whilst ignoring the relevant ones. Moreover, the content of the hard disks were all collected by the investigation agency of the predicate offences and the ED simply relied upon the same in order to prosecute the petitioner for offences under the PMLA. The petitioner pertinently did not raise the ground when the investigating agency was relying upon the said material in the trial being convened in relation thereto. It is not necessary for the ED to rely upon all the materials collected in the predicate offence, but to select the relevant materials to make out a case under the PMLA. The ED has simply obtained a mirror copy of the seized digital devices already in custody of the Special Court dealing with Member of Parliament (MP)/Member of Legislative Assembly (MLA) cases, which mirror copy is being relied upon in the complaint case. The Court also returned an observation that it could not discover any tampering/ante-dating/over writing, etc. in relation to the said hard disks and the allegations of manipulation of the said hard disk is an issue which can be gone into only at the stage of trial which involves appreciation of evidence by the Special Court. The hard disk and the report premised thereupon was therefore found to be prima facie genuine and a reliable material which can be taken into consideration for deciding the bail application. The High Court further held that it cannot conduct a roving inquiry or a mini trial to test the probative value of the electronic record relied upon by the ED, but only be satisfied about their prima facie genuineness. The contention of the petitioner accordingly opposing the reliance on the contents of the hard disk was rejected by the High Court. Insofar as the other contention pertaining to existence of proceeds of crime was concerned, the Court relied extensively upon the sheets, diaries and documentary entries recovered from the office of the petitioner, which clearly reflected a figure of generation of around Rs 67.74 crores from the various illicit activities of receiving commissions from various job aspirants was mentioned. The excel sheet in which all the facts or in which all the figures pertaining to generation of proceeds or crime were mentioned was found to be part of the hard disk CF 27/21, already being relied upon by the Special Court in the trial relating to predicate offence. The ED was simply relying upon the printout of the said excel sheet, from the hard disk concerned already being exhibited and produced before the trial court. Even this contention of the petitioner was therefore rejected as unsustainable.

The High Court further held that if there is a prima facie material to show that amount has been received by misusing the position of the petitioner as a Transport Minister, then it is not necessary for the ED to further establish that such proceeds of crime were projected as untainted money subsequently. In view of the amendment to Section 3 effected in 2019, the statutory position is clear that proceeds of crime shall be constituted if there is misuse of position by the public servant concerned. The Court in this respect relied upon the judgment of the Supreme Court in Enforcement Directorate v. Padmanabhan Kishore.²² The High Court then dealt with the next contention of the petitioner that majority of statements relied upon by the ED recorded under Section 50 were either of the co-accused persons or of the potential suspects. The six independent witnesses never implicated the petitioner in their statements given to the ED. The High Court found that petitioner alone had been made an accused in the complaint filed by the ED, and none of the other persons whose statements were recorded under Section 50 were either accused or the suspects. Again, falling back upon the Vijay Madanlal judgment, the Court held that if the statement made by any person (even a suspect) reveals the offence of money laundering or the existence of proceeds of crime, it becomes actionable under the Act itself. At the stage of summons, person cannot claim protection under Article 20(3) of the Constitution of India till he is formally arrayed as an accused or arrested by the ED. The process envisaged under Section 50 is in the nature of an enquiry against the proceeds of crime and not an investigation. Therefore, the authorities who are recording the statements are not police officers, and the statements relied upon by them can be treated as admissible piece of evidence before the Court. The summon proceedings and recording of statements under Section 50 enjoy the status of judicial proceedings by virtue of Section 50(4) and therefore can always be considered as an important material implicating the petitioner. The co-accused or the suspected person in the predicate offence cannot automatically be brought within the same status in the PMLA proceedings and authorities can always deal with them, by treating them as witnesses.

The Court then dealt with the contention of the petitioner regarding his inability to influence the witnesses or tamper the evidence having seized to be the Minister in the Cabinet. Referring to the judgment of P. Chidambaram v. CBI²³, Court discussed the triple test laid down by the Supreme Court applicable for grant of bail under Section 439, Criminal Procedure Code especially in cases involving economic offences. The Court found that even if the petitioner had resigned from his position as a Minister, he continues as an MLA belonging to the very same party running the Government in the State of Tamil Nadu. The petitioner therefore continues to yield a lot of influence on the Government and witnesses who are mostly the officials belonging to the Transport Department and the prospective job seekers who had paid the money are bound to be influenced/tampered with. Taking into consideration the larger interest of the public/State and the fact that petitioner was involved in a cash for job scam misusing his position as a Transport Minister, if the petitioner is let out on bail in the case of such a serious nature it will send a wrong signal. Accordingly, the Court dismissed the regular bail application of the petitioner while directing the Special Court to dispose of the pending trial within a period of three months.

***

(6) Shiv Charan v. Enforcement Directorate²⁴

(Delivered on 1-3-2024)

Coram: 2-Judge Bench of HM B.P. Colabawalla and Somasekhar Sundaresan, JJ.

Authored by: HM Somasekhar Sundaresan, J.

The issue that arose before the Division Bench of the High Court pertained to implications of Section 32-A, Insolvency and Bankruptcy Code for corporate debtors and their assets, upon approval of resolutions, and indeed for enforcement agencies that have attached assets of such corporate debtors. The interplay of Section 32-A, Insolvency and Bankruptcy Code and its overriding effect qua the provisions of the PMLA and to what extent National Company Law Tribunal can exercise powers releasing the attached properties under the aforesaid provision has been considered by the Bombay High Court.

Factual matrix of the case

The case involved resolution of DSK Southern Projects Private Limited (for short, “corporate debtor”), which was subjected to corporate insolvency resolution process (for short, “CIRP”) at the instance of a financial creditor. A resolution plan came to be approved by the National Company Law Tribunal, Mumbai through its approval order passed under Section 31, Insolvency and Bankruptcy Code. The resolution plan was propounded by the petitioners Shiv Charan and others.

Prior to the commencement of CIRP, various FIRs were registered for cheating and allied offences against the corporate debtor and its erstwhile promoters. Consequentially, ED also registered Enforcement Case Information Report under the PMLA treating the money in the hands of the company as proceeds of crime to the extent of 8522.27 crores. A complaint case also came to be filed before the Special Court under Section 44 PMLA at the instance of ED, leading to attachment proceedings against the assets of the corporate debtor. Resultantly four bank accounts, immovable properties, and other assets of corporate debtor valued around Rs 32.47 crores approximately were also attached resultantly through a provisional attachment order passed by the adjudicating authority under Section 8 PMLA. This attachment continued during the commencement of the CIRP and even after approval of the resolution plan by the National Company Law Tribunal. It is this continuation of such attachment order which became the heart of whole controversy which reached the High Court.

The resolution applicants sought quashing of the Enforcement Case Information Report as also the original complaint filed before the Special Court along with the consequential provisional attachment order passed by the adjudicating authority insofar as they are related to the corporate debtor and its assets. A counter writ petition was filed by the ED seeking quashment of the order passed by the National Company Law Tribunal under Section 32-A, Insolvency and Bankruptcy Code, through which National Company Law Tribunal had directed the ED to release the attached properties attached through the provisional attachment order. The National Company Law Tribunal pertinently had ordered that once a moratorium under Section 14, Insolvency and Bankruptcy Code came into effect and CIRP was approved, the attachment by the ED automatically abated. Accordingly, it directed the release of all the properties so attached by the ED.

The contentions of both the parties hinged upon the applicability of this special and general legislation with either side calling their respective legislation (National Company Law Tribunal or the PMLA) as a special legislation prevailing over another.

Consideration and discussion by the Court

The petitions raised a larger issue as to whether any attachment of assets is at all permitted to be continued once a moratorium commences owing to initiation of CIRP before the National Company Law Tribunal. The ED treats the attachment to be continued over the attached properties despite Section 32-A, Insolvency and Bankruptcy Code. The real question, the Court therefore examined was the legality of continuity of the attachment levied on the properties of corporate debtor under the provisions of the PMLA in the teeth of provisions of Section 32-A, Insolvency and Bankruptcy Code.

Referring to the provisions of Section 32-A, Insolvency and Bankruptcy Code, Court held that it is a non obstante provision which is attracted only when resolution plan gets approved under Section 31. There are in-built restrictions, checks and balances whereunder the immunity conferred by Section 32-A is available only and only if the approved resolution plan results in a complete change in the character of ownership and control of the corporate debtor. In view of Section 32-A(1), the liability of corporate debtor for any offence committed prior to commencement of CIRP completely ceases, however at the same time the corporate debtor is disentitled from such immunity if it is found that promoters of those in the management or control of the corporate debtor continue in the management or control of corporate debtor under the approved resolution plan. Also, the immunity is available only to the corporate debtor (the company) and not to any other person who was in management or control or was in any manner in charge of, responsible to the corporate debtor for the conduct of its business earlier prior to the approved resolution plan. Effectively all the accused persons remain on the hook unaffected by the resolution plan and it is the corporate debtor only which gets the statutorily stipulated immunity, that too only when a resolution plan is approved under Sections 31 and 32-A(2) goes a step further and also protects the property of the corporate debtor from any attachment and restraint in proceedings connected to the offence committed prior to commencement of the CIRP. It evidently brings within its compass attachments made under the PMLA as well. Wherever a successful sale of assets of a corporate debtor is effected to an unconnected purchaser in liquidation proceedings, the purchaser of the property in liquidation must enjoy it freely and therefore pay the best value when bidding for it, is the objective behind Sections 32-A(1) and (2). The protection of Section 32-A ensures immunity from further prosecution against the corporate debtor and its properties. Section 32-A(3) enjoins the corporate debtor to continue to cooperate with the enforcement agencies insofar as the pending prosecution against its erstwhile management and individuals is concerned. The Court found that it is an admitted fact that none of the resolution applicants (who came into scene post approval of the resolution plan) is in charge of or responsible for commission of alleged scheduled offences being prosecuted by the ED, and are third parties completely unconnected to the previous management. The dispute raised by the ED purely relates to power of the National Company Law Tribunal in ruling upon for release of attachment of the properties under the PMLA. The Court therefore held that this is all the more reason that Section 32-A must be allowed to have a full play.

The Court next discussed about the interpretation of Section 31, Insolvency and Bankruptcy Code. In this context the Court read Section 31, Insolvency and Bankruptcy Code conjointly with Section 60(5), Insolvency and Bankruptcy Code, provision under which National Company Law Tribunal passed its April 2023 order, especially the first proviso to Section 31, which obligated the National Company Law Tribunal to be satisfied itself about that resolution plan has provisions for its effective implementation. Interpreting the proviso to Section 31(1) the Court held that National Company Law Tribunal is enjoined with the duty to ensure that resolution plan must have provisions for its effective implementation and in keeping with this duty that the National Company Law Tribunal has directed the ED to raise its attachment on the properties of the corporate debtor as mandated by Section 32-A, Insolvency and Bankruptcy Code. Looking to the purpose and object behind both the provisions of Sections 31 and 32-A, Insolvency and Bankruptcy Code, the National Company Law Tribunal therefore had all the powers to direct ED to raise its attachment in relation to the attached properties and releasing them for the enjoyment by the purchaser of those properties post approval of the resolution plan.

The Court interpreting Section 30(5) further held that National Company Law Tribunal is empowered to decide any question of priorities or any question of law or facts arising in relation to any insolvency resolution or liquidation proceedings. Holding that Parliament has explicitly conferred jurisdiction on the National Company Law Tribunal to entertain or dispose of any question of law or fact, such questions would include even those arising in relation to effect and impact of change under Section 32-A, Insolvency and Bankruptcy Code. Accordingly, the National Company Law Tribunal rightly and accurately answered the question of law arising under Section 32-A and directed for release of the attached properties so affected by the ED. Once the jurisdictional facts are found to exist, National Company Law Tribunal was entitled to examine the question and scope of immunity available post approval of the resolution plan. Both Sections 32-A and 60(5) are non obstante provisions under the Insolvency and Bankruptcy Code which operate notwithstanding any other law including the PMLA. Therefore, there was no basis whatsoever to treat the provisions of attachment under the PMLA as being uniquely carved out as an exception. Even the ED under the PMLA was therefore bound to obey and respect the command of National Company Law Tribunal and to ensure that rule of law is maintained. A tribunal with explicit jurisdiction has duly and accurately exercised its power, which must be respected by all the law enforcement agencies.

The Court further held that jurisdiction of Section 32-A commences when the jurisdiction of Section 14 ends as the approval order brings to an end the moratorium under Section 14 imposed by the National Company Law Tribunal. Unless and until a resolution plan is approved under Sections 31 and 32-A powers are not at all attracted. Referring to the judgment of Manish Kumar v. Union of India²⁵, Court held that immunity under Section 32-A is a conscious and valid legislative conferment by Parliament and aimed towards successful transition of the company in the hands of bona fide purchasers. Parliament whilst legislating Section 32-A, Insolvency and Bankruptcy Code, an enactment subsequent to the PMLA was fully aware of the provisions of the PMLA and especially legislated and provided for immunity to the corporate debtor under Section 32-A. This is yet another reason why Section 32-A must be allowed to have full force and effect regardless of attachment orders issued under the PMLA. The immunity under Section 32-A fastens itself by operation of law from the point in time at which the resolution plan is approved. Instruments of enforcement would continue to prosecute other accused and their properties but not the corporate debtor.

Accordingly, the Court affirmed the orders passed by National Company Law Tribunal holding that the property of corporate debtor would stand released from attachment and eventual exercise of confiscation, both of which stood necessarily abated and ended with the approval of the resolution plan. The interpretation accorded by National Company Law Tribunal in both the approval order as well as the release order was accordingly approved by the High Court and the petitions accordingly disposed of.

***

(7) Razorpay Software (P) Ltd. v. Union of India²⁶

(Delivered on 5-3-2024)

Coram: Single Judge Bench of HM Hemant Chandangoudar, J.

The petitioner company challenged the proceedings instituted under the PMLA, the cognizance taken by the Special Court and the issuance of summons to it on the allegations of money lending through mobile phone applications on exorbitant rates of interest and thereafter harassing the borrowers, abusing and threatening them for repaying the money so borrowed from them. The scheduled offences were registered under various provisions of the Penal Code as also under Sections 66 and 67, Information Technology Act. The ED conducted an investigation and filed the complaint before the Special Court arraigning them as Accused 7 was stated to be a payment gateway, who were negligent in allowing transactions in the name of Accused 5 without due diligence and this was substantiated by the statement of the employees of the petitioner company.

The petitioners argued that there was absence of any allegation or material that the petitioner was actually involved in the concealment of the proceeds of crime or knowingly assisting the concealment of such proceeds of crime, stated to have arisen from the predicate offence. The primary burden was not discharged by the ED of establishing that the petitioner had itself committed offences under the PMLA, neither the guilt was established and thus the presumptions under Sections 22 and 24 could not be attracted.

The petitioner company was not residing within the territorial jurisdiction of the Special Court at Delhi and therefore summons under Section 204, Criminal Procedure Code could not have been issued without compliance of mandatory provisions under Section 202, Criminal Procedure Code.

The ED on the other hand contended that Section 202, Criminal Procedure Code would not be attracted to the complaint at hand as jurisdiction is specifically conferred on the Special Court under Section 44(1)(b) to take cognizance notwithstanding anything contained under the Criminal Procedure Code and thus the rigours of Section 202, Criminal Procedure Code were not applicable. The petitioner even though an intermediary, could not have claimed immunity under the PMLA, even though it might have claimed immunity under Section 79, Information Technology Act.

Issues for consideration before the Court

After hearing both parties, the Court framed the following key points for its deliberation:

1. Is it permissible to take cognizance and issue summons without

conducting an enquiry as prescribed under Section 202, Criminal Procedure Code?

2. Can the petitioner, who is not charged with the predicated offence, still be prosecuted for the offence under the PMLA?

3. Does the investigation under the PMLA provide sufficient evidence to establish that the petitioner-Accused 7 has prima facie committed the offence alleged?

Consideration and discussion by the Court

Referring to the Vijay Madanlal judgment and Pavana Dibbur v. Enforcement Directorate²⁷ and T.D. Sonia v. Union of India²⁸, Court noted that regardless of his connection with the scheduled offence, the individual can be proceeded under Section 3 PMLA if he has knowingly assisted in concealing the proceeds of crime or facilitated the use of such proceeds of crime. His involvement in any capacity with the proceeds of crime renders him liable under Section 3.

Referring to the judgment of Kunal Bahl v. State of Karnataka²⁹, Court stated that if an accused maintains an office, branch office, corporate office, sales office or similar establishment within the jurisdiction of the Magistrate where the offence was committed or continues to be committed, the necessity of conducting an enquiry under Section 202, Criminal Procedure Code is dispensed with. The Magistrate however must record the rationale and reasoning behind not conducting the said enquiry under Section 202, Criminal Procedure Code. Further, the statement of a public servant who has filed a statutory complaint in discharge of official duty like the complaint filed by the ED under the PMLA, the statement may not be recorded in such cases by the Magistrate when it is so found to be filed.

Referring to Section 44(1)(b) PMLA, the Court held that the Special Court regardless of the provisions of the Criminal Procedure Code, can take cognizance of an offence under Section 3 without the case being committed to it for trial. Since, admittedly the scheduled offences are under investigation by the jurisdictional police therefore the petitioner can rightly be subjected to prosecution under the PMLA in the courts situated at Delhi. Even though they are not an accused in the predicate offences being imputed with specific allegations, they would nonetheless be subjected to trial of the offences of money laundering.

Whilst considering the ground as to whether the petitioner had prima facie committed the offence of money laundering, the Court delved into the complaint filed before the Special Court by it under Section 44(1)(b). The petitioner was found to be a payment gateway which simply created a merchant identity document (ID) in the name of other co-accused person, without carrying out proper due diligence. These merchant IDs were used by the other co-accused persons for collecting, disbursing money and committing the scheduled offences. From these merchant IDs, an amount of Rs 86.44 lakh was also earned by the co-accused persons, especially Accused 5. The ED further alleged that the petitioner thus facilitated illegal money lending of Accused 5, enabling it to generate the proceeds of crime.

In the above backdrop, the Court proceeded to discuss the essential elements to constitute an offence under Section 3 of the Act, on the basis of various judgments which were discussed as follows:

1. Proceeds of crime: Involvement with the property derived from criminal activity.

2. Directly or indirectly engaging: Participation in concealing, transferring or removing the proceeds of crime.

3. Knowledge of reason to believe: The accused must have knowledge or reason to believe that the property involved is derived from a criminal activity related to a scheduled offence.

4. Criminal activity: The offence under Section 3 PMLA is linked to the scheduled offences listed in the act.

5. Intent: There should be intention on the part of the accused to project the proceeds of crime as untainted money.

The Court however found that the petitioner never entered into any direct agreement with the other co-accused, especially Accused 7 (the principal accused) and the persons who created the merchant IDs on the payment gateway of the petitioner company, nor were associated with the company at all. There were names of other banks/payment gateways also like ICICI Bank, RBL Bank, IDFC Bank, Paytm who also likewise the petitioner’s did for the other entities and co-accused persons. However, none of them had been arraigned as accused in the complaint by the ED, nor the commissions earned by them for facilitating such transactions on their platforms had been attached as proceeds of crime by the respondent. Thus, the petitioner had been singularly selected and selectively targeted.

There was no evidence to suggest that the petitioner which is the payment gateway had any knowledge that the funds transferred to the merchant IDs of Accused 5 were derived from any criminal activity related to a scheduled offence, nor did they knowingly assist Accused 5 in concealing or transferring illicit proceeds as clean money. At the highest the petitioner was negligent in its due diligence, in setting up the merchant IDs in the name of Accused 5. Existence of intent is essential to constitute an offence under Section 3 PMLA and therefore the commission amount earned by Accused 7 cannot be deemed or treated as a result of facilitating the illegal money-lending business of Accused 5.

Since, the Court found no prima facie material to substantiate that Accused 7, the petitioner had knowingly facilitated the transfer of proceeds of crime, the presumption could not have been drawn that the petitioner was involved in money laundering under Section 24, since the initial burden itself had not been discharged by the ED. The complaint averments failed to satisfy the essential ingredients required to constitute the alleged offences under the PMLA as alleged against the petitioner and criminal proceedings were nothing but an abuse of the process of law. Accordingly, the High Court quashed the impugned proceedings so initiated by the respondent ED.

(8) Amanatullah Khan v. Enforcement Directorate³⁰

(Delivered on 11-3-2024)

Coram: Single Judge Bench of HM Swarana Kanta Sharma, J.

The application was filed under Section 438, Criminal Procedure Code, 1973 read with Sections 45 and 65 PMLA by the applicant seeking anticipatory bail in relation to the Enforcement Case Information Report registered for offences punishable under Sections 44 and 45 PMLA.

Factual matrix of the case

The ED registered Enforcement Case Information Report against the applicant Amanatullah Khan, an MLA from Delhi, and the erstwhile Chief Executive Officer (CEO) of Delhi Waqf Board (for short, “DWB”), in relation to predicate offences registered against him by the Central Bureau of Investigation under various provisions of the Prevention of Corruption Act, 1988 (for short, “PCA”). Along with the aforesaid FIR, a number of other FIRs were also registered, alleging broadly as follows:

1. Misuse of official position as the CEO of DWB by appointment of near and dear ones without adopting any transparent process and in the process earning windfall gains through irregular, illegal and backdoor appointments of various employees in DWB.

2. Carrying out the aforementioned appointments without the prior approval of competent authorities of the Delhi administration and huge personalised purchases from the funds and corpus of DWB causing financial loss to its corpus.

3. Handing over of properties worth more than Rs 100 crores to unauthorised persons without any due process belonging to DWB, without adopting any transparent process of calling advertisements or calling bids and thus misappropriation of huge financial amounts in collusion with the other senior officials of DWB appointed by him.

4. Recovery of illegal weapons from the physical possession of Hamid Ali Khan and Kausar Imam Siddiqui, close associates of the applicant.

The ED after investigation post registration of Enforcement Case Information Report filed prosecution complaint against the applicant, have also his close associates acting on his behalf, essentially Zeeshan Haider, Daud Nasir, Jawed Imam Siddiqui and others under Section 44 read with Section 45 PMLA. The allegations made in the complaint against various persons acted in active conspiracy with the applicant Amanatullah Khan, MLA during his stint as Chairman of DWB were summarised as follows:

1. The applicant had accumulated proceeds of crime out of the illegal gratification in lieu of favours being given to various bidders and lessees of Waqf properties, as also beneficiaries of illegal jobs.

2. The applicant along with his accomplices and the co-accused persons purchase properties in the name of his firm for an amount of approximately Rs 36 crores, out of which Rs 27 crores was paid in cash and 9 crores through bank. These transactions of cash in huge amounts as also multiple other transactions were all disclosed in a white colour diary, which disclosed all the details of the actual benami owner of the property and the paper owners of the said property.

3. A false and fabricated agreement to sell indicating a total sale consideration of Rs 13.40 crores was shown for misleading the investigation and thus the co-accused Zeeshan Haider and Daud Nasir allegedly acts as benamidars for the applicant Khan.

Submissions on behalf of the contesting parties

1. The applicant essentially contended that existence of proceeds of crime is a sine qua non for the commission of offence of money laundering and since ED has not furnished any evidence demonstrating the present applicant’s participation in the placement, layering and integration of proceeds of crime, no contravention of the PMLA provision arises in the present matter.

2. In the various orders granting bail in relation to the predicate offence, the Special Court (CBI) as well as the High Court had categorically held that no cash or recovery of any money was stated to have been effected from any of the applicants. Therefore, the precise amount of perpetrated proceeds of crime remains undisclosed, unidentified and completely vague.

3. Per contra, on behalf of ED it was contended that the applicant had indulged in the process and activity of money laundering and further remained non-cooperative in the investigation conducted so far by failing to respond to summons issued under Section 50 by the ED on numerous occasions.

4. The ED further contended that the diaries recovered during investigation have been factually verified and they hold evidentiary significance under Section 22 PMLA. The proceeds of crime generated by the applicant through criminal activities linked to the scheduled offence were utilised to acquire properties in the name of his proxies, by presenting the illegitimately earned money as legitimate assets. The co-accused had admitted that properties were held by them on paper in the name and benami ownership of the applicant in the statements recorded under Section 50 given to the ED.

Bail under the PMLA

Referring to the Vijay Madanlal judgment and Tarun Kumar v. Enforcement Directorate³¹, Court held that the conditions under Section 45 are mandatory and need to be complied with whenever any bail application is being preferred and considered by the Sessions Court. Referring to the judgments of Enforcement Directorate v. V.C. Mohan³², Enforcement Directorate v. M. Gopal Reddy³³ and P. Chidambaram v. Enforcement Directorate³⁴, Court held that Parliament has never intended to exclude the operation of Section 45 PMLA in case of anticipatory bail, lest it will create an unnecessary dichotomy between bail and anticipatory bail, not only irrational, but also discriminatory and arbitrary. The rigours of Section 45 PMLA come into play without exception even in the case of anticipatory bail.

Compliance of summons under Section 50 PMLA

Referring to the Vijay Madanlal judgment and Moloy Ghatak v. Enforcement Directorate³⁵, Court reiterated the proposition that any person summoned under Section 50 is bound to attend in person or through authorised agent and to state truth upon any subject concerning which is being examined or expected to make a statement and required to produce documents. The powers of designated officials are wide and large to summon any person for the collection of information and evidence to be presented before the adjudicating authority. Referring further to the judgment of Enforcement Directorate v. State of T.N.³⁶, the observations of the Supreme Court were quoted laying down that even the government officials like the District Collectors or any other person to whom the summons are issued under Section 50(2) are obliged to respect and respond to the same.

Referring to the judgment of Rohit Tandon v. Enforcement Directorate³⁷, Court held that statements recorded in response to Section 50 summons are admissible in nature and can be relied upon to build a formidable case regarding the offence of money laundering. Such statements cannot be compared to statements under Section 67, Narcotic Drugs and Psychotropic Substances Act or be alleged to be violative Article 20(3) of the Constitution of India. At the stage of consideration of anticipatory bail, statements recorded under Section 50 PMLA are very relevant to be considered and appreciated along with other evidence collected by the investigating agency for ascertaining whether the offence of money laundering is prima facie made out against any accused or not.

Incriminating role of the applicant as investigated by ED

The Court recorded that seizure of large-scale incriminatory documents/records/articles had been effected by the ED which provided details of huge cash transactions valuing more than Rs 100 crores during the period between 2018 to 2022 disclosing the real estate transactions of various properties in Delhi, Dehradun, Telangana, etc. Through his proxies and co-accused persons, these huge cash transactions running into crores of rupees were effected, including the purchase of a plot valuing around Rs 36 crores. The Court referred to entries disclosed by such diaries, which showed the cash payments of around Rs 8.63 crores made by the applicant himself and through his proxies.

Section 50 statement of his close aides Kausar Imam Siddiqui and Zeeshan Haider disclosed that entries made in the diaries and various documents were all correct, written in his own handwriting, on the directions of the applicant. A property worth Rs 36 crores of market value through false and fabricated agreement to mislead the investigation and to conceal the actual sale transaction value was shown to have been purchased for Rs 13.4 crores at the behest of the applicant. The prosecution even recovered WhatsApp chat which disclosed that the applicant was the mastermind and main planner behind the purchase of all the properties. Thus, the huge amounts of cash were nothing but the proceeds of crime which had generated from the applicant Khan.

Consideration of anticipatory bail when non-cooperation with the investigating agency is alleged

The applicant accused pleaded that because his anticipatory bail application was pending before the Sessions Court and thereafter before the High Court, therefore he was avoiding responding to summons issued by the ED for personal appearance. The High Court held that legal strategies cannot be allowed to defeat at the ends of justice and rights of investigative agencies to carry out their investigation. The applicant despite issuance of six summons by the ED chose not to appear but continue to seek time on one pretext or another. The High Court further held that it is the bounden duty of every citizen to join investigation whenever called for and nearly because the anticipatory bail has been preferred, is no ground for avoiding the summons issued by the ED.

Not responding to or attending to the notices or summons of ED would amount to non-cooperation with investigation, especially in the present case where the applicant himself being an MLA was into public service. Since, the applicant had admittedly indulged into gross misuse of public funds for his personal use, it was all the more necessary that he joins and cooperate with the investigation. The basic purpose of the ED for calling or summoning the applicant was to confront him with his co-accused persons and the statement tendered by them along with the entries and contents of the diary seized in the case which reflected payment of huge amounts of cash for purchase of various properties by the applicant. The applicant had systematically and repeatedly avoided summons, in view of which therefore grant of anticipatory bail may work against the interest of the ED. The High Court further remarked that granting anticipatory bail would amount to trivialising the alleged offence and the attendant message to the public that there is no need to obey the law viz. is responding to the summons and joining investigation.

Merely because fundamental rights are available to any person, it does not mean that the right of the State to investigate an offence gets sacrificed, which is also in the larger interest of the country, State or community. Being a public figure in politics, it was all the more obligatory for the applicant to have appeared before the investigating agency. His special standing as the representative of the people/society does not create a class or elite class entitling him to different treatment being extended under the same law. If the conduct of the applicant is accepted of having ignored repeated summons, almost six times without any valid excuse, then it will compromise all the future investigations of ED if anticipatory bail is granted to him. Refusing to assist, aid and appear before the ED itself amounts to obstructing the law enforcement agency.

Accordingly, the anticipatory bail application on the petitioner was rejected holding that twin tests as stipulated under Section 45, were not satisfied.

***

(9) Dinesh Kumar Singh v. Enforcement Directorate³⁸

(Delivered on 22-3-2024)

Coram: Single Judge Bench of HM Sanjay Kumar Singh, J.

The petitioner approached the High Court for grant of regular bail on being prosecuted under Sections 3 and 4 PMLA by the ED.

Factual matrix of the case

In the year 2017-2018 one Garvit Innovative Promoters Limited (for short, “GIPL”) along with its promoters floated a scheme in the name of BIKEBOT. Vide this scheme they initiated a bike taxi service similar to Ola and Uber, calling upon the people to invest in the scheme and get assured monthly returns/income up to 12 months at higher interests. Agreements with the investors were also executed in the said regard and on the assurance of GIPL, its promoters and other associates, huge amounts were invested by the public at large in the said BIKEBOT scheme. Thereafter, suddenly the company stopped giving monthly returns to its investors, which led to the investors mounting pressure for refund of their deposit money. Cheques were issued by GIPL, but all were returned unpaid/bounced, that led to registration of around 25 FIRs against various promoters and other decision-makers of GIPL. Following in the footsteps of the police authorities, the ED also registered Enforcement Case Information Report in the said scam, in which it was discovered that GIPL had raised around Rs 2800 crores from around 1.7 lakh customers.

The ED further discovered that one Dhirendra Pal Solanki had received an amount of Rs 17.94 crores from GIPL, out of which Rs 1.7 crores were transferred to the present applicant from his account maintained at the SBI, Greater Noida branch. Certain cash amount was also found to have been paid to the applicant on the pretext of closure of investigation against the said Dhirendra Pal Solanki. All these allegations against the petitioners were mentioned by the ED in their third supplementary complaint in which for the first time the name of the petitioner as one of the accused was mentioned and arrayed in the complaint.

In support of his bail application the applicant contended essentially that the main accused Dhirendra Pal Solanki has neither been arrested nor proceeded by the ED in any manner, nor any complaint filed against him by being made an accused by the ED in any of their prosecution complaints. Thus, ED had been adopting differing modes by extending tacit support to Dhirendra Pal Solanki. The applicant further contended that in his Section 50 statements, Solanki had admitted borrowing Rs 1.95 crores from the applicant, which amount was taken as a loan and was later returned to the applicant by paying Rs 1.76 crores from his SBI account. Thus, the money which has been exchanged between the petitioner and the Solanki was essentially a repayment of the amount borrowed by the latter. The applicant was not at all involved nor made an accused in the scheduled offence, nor had he any dealing or involvement with the scam effected by GIPL. To the contrary, the ED had sufficient material which demonstrated that Solanki had received huge amounts in his four bank accounts from the other persons constituting the management of GIPL.

The Court on analysis of various contentions and submissions found that undisputedly applicant had no role in fraud, etc. committed by GIPL through its BIKEBOT scheme. The applicant was also not named in any of the 55 FIRs lodged by the investors, not charge-sheeted in the predicate offences. To the contrary, the complicity of Solanki had been reflected at the initial stages of investigation itself in the statements given by the promoters of GIPL, disclosing that more than Rs 20 crores payment as proceeds of crime was transferred to Solanki. However, ED for reasons best known to it had neither arrested Solanki, nor made him accused. The reply of ED to the query of the Court as to why Solanki had not been proceeded as an accused in the criminal prosecutions launched by it failed to elicit any substantial answers, rather vague and evasive replies were offered which failed to inspire confidence and cannot be treated as reasonable and cogent reasons. This is despite the fact that Dhirendra Pal Solanki was found to have been a beneficiary of proceeds of crime of around 20 crores directly from GIPL. However, insofar as the petitioner applicant was concerned, he had not received money from any of the four dubious bank accounts, but from a different bank account, that too under a private loan repayment arrangement. There was no positive clinching corroborated evidence of cash transaction between the applicant and Dhirendra Pal Solanki except the statement under Section 50, given by the latter, which was not corroborated anywhere.

The applicant was found to have been languishing in jail for a lengthier passage of time owing to which the Court eventually proceeded to grant bail to him and allowed his application.

***

(10) Saurabh Mukund v. Enforcement Directorate³⁹

(Delivered on 29-3-2024)

Coram: Single Judge Bench of HM Mohd. Faiz Alam Khan, J.

The petitioner moved the application under Section 482, Criminal Procedure Code seeking quashing of the second Enforcement Case Information Report and the resultant summons issued in pursuance of the said Enforcement Case Information Report to the petitioners. The petitioner also sought collateral and ancillary reliefs of restraining the officers of ED from carrying out any investigation in pursuance of the Enforcement Case Information Report under challenge.

Factual matrix of the case

The petitioner was being prosecuted in relation to a complaint lodged by the SFIO before the Special Judge (Companies). The ED also registered an Enforcement Case Information Report arising out of the said scheduled offence trial. In the above backdrop another set of summonses in relation to a new Enforcement Case Information Report relating to the same subject-matter and the recommendation of SFIO concerning 111 companies came to be registered. The petitioner contended that the issuance of summons in two parallelly registered Enforcement Case Information Reports was in contravention of the law laid down by the Supreme Court in T.T. Antony v. State of Kerala⁴⁰. The petitioner further pleaded that copies of Enforcement Case Information Reports were not provided to him despite requests from which he could have ascertained the subject-matter of both the Enforcement Case Information Reports as being overlapping and premised on the same subject-matter. There was no new cause of action for the ED to have proceeded against the petitioner.

The ED on the other hand contended that writ petitions cannot be entertained at the stage of summons, nor issuance of summons gives rise to any cause of action to the petitioner to assail the same in writ ended proceedings. The ED further contended the subject-matter of the subsequent Enforcement Case Information Reports was not connected with that of the earlier Enforcement Case Information Report, pertaining to which complaint has already been filed.

Consideration and discussion by the Court

The High Court relying upon the Vijay Madanlal judgment, held that Enforcement Case Information Report is an internal document of the ED, which is purely administrative in nature. The summons issued under Section 50 is in the nature of inquiry to initiate action against the proceeds of crime and to prevent any activity of money laundering. In the process of such inquiry, the competent authority under the Act is empowered to resort to attachment of the proceeds of crime under Section 48, effect search and seizure and to arrest any involved in the offence of money laundering. The person so summoned is bound to attend in person or through authorised agent before the ED in response to the summons. He is also expected to make accurate statements and produce correct documents as may be required in the case before the ED. Referring to the judgments of Commr. of Customs v. M.M. Exports⁴¹ and Poolpandi v. CCE⁴², Court noted the law laid down by the Supreme Court that High Court should not interfere at the stage of issuance of summons. For achieving the object of any inquiry if the appropriate authorities are of the view that person should be insulated and dissociated from the company of persons who provide encouragement to them in adopting a non-cooperative attitude to the machinery of law, there cannot be any legitimate objection in depriving them of such a company, including the company of lawyers.

On the issue of non-supply of Enforcement Case Information Report to the accused, Court held that disclosure may have deleterious impact on the final outcome of the inquiry/investigation. So long as the person has been informed about the grounds of his arrest, that is sufficient compliance of the mandate of Article 22(1) of the Constitution of India. In any case the person sought to be proceeded against by the ED gets all the relevant documents, material and information once the complaint is filed by the ED before the Special Court, under Section 44(1)(b) of the 2002 Act. The supply of Enforcement Case Information Report in every case to person concerned is not mandatory. It does not lead to violation of any constitutional right of the accused. In appropriate cases, the ED may require the personal presence of “any person” to “give evidence” or to “produce any record” and to examine him “on oath”. If the authorities are of an opinion that certain personal clarifications are required from the person against whom summons are issued, then personal appearance can be secured through summons of such persons. Mere registration of an Enforcement Case Information Report does not make a person an accused. He may eventually turn out to be an accused upon being arrested or upon being prosecuted. However, summons cannot be questioned on the ground that there is a possibility that he may be arrested in the future. Applying the law so discussed and laid down by the Supreme Court in various judgments, the High Court held that the investigation in the subsequently registered Enforcement Case Information Reports was still continuing and petitioner had just been summoned to appear and submit certain documents which may be in his possession as he had been an employee of the company’s under scanner. Therefore, the petitioner’s prayer seeking quashment of the Enforcement Case Information Report itself so registered subsequently is premature at this stage when even the status of the applicant before the ED is not known and is in the realm of uncertainty.

The copy of the Enforcement Case Information Report sought to be questioned and prayed to be quashed by the petitioner was also not before the Court. It is not mandatory either for the ED to furnish a copy of the Enforcement Case Information Report to the petitioner and thus the petition has been filed on mere apprehensions and assumptions. The investigation process cannot be hampered at the initial stage as courts cannot presume what possible actions could be taken by the competent authority even before the completion of the investigation. The petitioner himself is not aware as to whether he has been summoned under Section 50 as an accused or as a witness as already an Enforcement Case Information Report was registered against him. Therefore, the High Court accordingly declined to quash the summons so issued under Section 50 to the petitioner and also declined to interfere with the Enforcement Case Information Report registered by the ED subsequent to the previously registered Enforcement Case Information Report. The writ petitions were dismissed.

***

(11) Sarang Wadhawan v. Enforcement Directorate⁴³

(Delivered on 5-4-2024)

Coram: Single Judge Bench of HM S.M. Modak, J.

The case pertains to a regular bail application filed by the petitioner in relation to offences registered under Sections 3 and 4 PMLA. Both the applicants are the promoters of Housing Development & Infrastructural Limited (for short, “HDIL”) group of companies, who had availed loans in crores from the Punjab & Maharashtra Co-operative Bank Limited (for short, “PMC Bank”) to the tune of total of Rs 6117.93 crores including the interest component. ED claimed that these were the proceeds of crime derived after committing the scheduled offence. The grounds broadly pleaded by the applicants were that they had already undergone half of the punishment for offence under Section 4 and thus entitled to be released on bail under Section 436-A, Criminal Procedure Code. The filing of bail applications by the applicants repeatedly on new grounds does not amount to delaying the conduct of trial and as such the disqualification mentioned under Section 436-A cannot be used against the applicants.

The ED on the other hand contended that there is no absolute right recognised as per Section 436-A, Criminal Procedure Code, where under seriousness of the allegations and severity of punishment need to be considered prior to exercising discretion by the Court. The trial court had recorded all the circumstances attributable to the applicants which resulted into delaying the conduct of trial.

Discussions and consideration by the Court

The Court noted that punishment prescribed under Section 4 for the offence committed under Section 3 is a minimum of 3 years with maximum of 7 years. The petitioner had admittedly undergone more than three and a half years of incarceration on the date of consideration of the bail application. On examining the various records and order sheets of the trial court found that the bail applications were being moved successively by various accused persons, which had delayed the progress of the trial and proceedings before the Special Court.

The Court summarised the various grounds and reasons for consumption of time in the conclusion of trial at hand, which included amongst many, the time consumed for scrutiny of papers; filing of additional complaints by the ED against additional accused persons; transferring the accused for investigation of other offences and recording of statement by the SFIO and such other reasons, not all of them attributable to the applicants. The Court accordingly recorded that though the trial court held the applicants responsible for delaying the hearing for almost 3 years, however it did not elaborate how the said period of 3 years had been taken. The steps and actions on the basis of which adjournments had been granted cannot be labelled as steps taken for delaying the trial. No mala fide was attributed by the ED on the applicants, in which case it cannot be held that the applicants had delayed the conduct of the trial.

On the nature of allegations and gravity of offence, the Court examined the complaint filed by the ED regarding the role of both the accused applicants. The ED had on the basis of statements of various witnesses and employees of HDIL demonstrated that rules were flouted for giving loans to HDIL by the PMC Bank. Without clearing or repayment of the previously existing loans, fresh loans were obtained from the bank. Likewise, to many other debtors/borrowers, loans were given by the bank without ascertaining about the clearing of the outstanding dues coming from before. There was proximity between the applicants and Managing Director of the PMC Bank, using which all the accused persons committed various offences under the Penal Code, generating thereby proceeds of crime of crores of rupees.

Referring to the judgments of Tarun Kumar case⁴⁴, Court noted that Section 436-A should not be construed restraining the entitlement of accused from being granted bail. While dealing with the twin conditions under Section 45 when the bail application is being considered, Court held that Section 436-A,Criminal Procedure Code shall equally prevail for deciding the said bail application. To the contrary, however the same cannot be granted mechanically by being treated as a default bail under Section 167, Criminal Procedure Code. The discretion still vests with the Court and relief can be considered on a case-to-case basis.

Referring to the judgment of Satender Kumar Antil v. CBI⁴⁵, Court held that gravity of offence and object of the Special Code both are to be seen when bail is being sought in relation to economic offences. The said benefit cannot be denied merely on the basis that allegations are serious if the conditions are fulfilled, Court is bound to give the benefit. If the trial of scheduled offence is likely to take time, then it is bound to affect the outcome of the PMLA trial. This is because both the cases are being tried together; will be conducted independently though through the very same judge. Section 44, explanation makes it clear that trial in the PMLA offence can be only simultaneous with trial of the scheduled offence. The accused cannot be blamed if other co-accused persons are moving discharge applications and the Special Court is required to decide them. Just because the allegations are serious in nature, the applicants ought not to be detained in jail. The judgment in the PMLA case will not be pronounced till the time the judgment in trial involving the scheduled offence is finally pronounced. The High Court called for a report from Registrar General about the likely duration consumed for convening the remaining trial, on which the trial court could not provide a sufficient and proper answer.

Accordingly, the High Court in view of the fact that trial is likely to take time with a substantial number of witnesses involved in the trial, which would inevitably affect the swift progress of the same. The bail applications accordingly of both the applicants were allowed and they were directed to be released on bail.

***

(12) Satyendar Kumar Jain v. Enforcement Directorate⁴⁶

(Delivered on 5-4-2024)

Coram: 2-Judge Bench of HM Bela M. Trivedi and Pankaj Mithal, JJ.

Authored by: HM Bela M. Trivedi, J.

The appeals were preferred against the common judgment and order rejecting their bail applications in relation to offences registered under the PMLA.

Factual matrix of the case

An FIR in relation to the scheduled offences under various provisions of the Penal Code and PCA came to be registered against the petitioners by the Central Bureau of Investigation. It was alleged that Satyendra Jain with the help of his family members and other accomplices had acquired disproportionate assets during the period between 2015 to 2017 whilst functioning as Minister of Government of NCT of Delhi and had laundered tainted cash amount through Kolkata based shell companies. ED also sprung into action and initiated proceedings under the PMLA for the offences of money laundering under Section 3 against all the three petitioners, in pursuance of which the prosecution complaint was also filed before the Special Court. All the three appellants were arrested by the ED, which found ample material of laundering of disproportionate income generated by the petitioners which was not satisfactorily accounted for through a complex web of companies controlled by the petitioner Satyendra Kumar Jain. The petitioners contended that they had throughout cooperated with the ED after registration of the FIR, responded to the summons and had spent enough time in custody. The ED has not been able to acquire any shares of companies as alleged by it within the check period of allegations and the assets held by the company also could not be related to the petitioners. Multiple other contentions were taken, including the ground that appellant is not at any flight risk, there is no risk of tampering of documents or witnesses and the medical conditions of the appellant warrant his release on bail as per proviso to Section 45 PMLA.

The contentions of the petitioners were rebutted on the behalf of the ED, which contended that the petitioner had generated huge amounts of cash and deposited it in various shell companies beneficially owned and controlled by him. The accommodation entries prepared for laundering the cash were layered and received from Kolkata and agricultural lands were purchased from the said funds. The appellant, Satyendra Kumar Jain was the mastermind behind the whole financial planning of constitution of shell companies and routing the money through them.

Consideration and discussion by the Court

The Court recorded the fact that the charge-sheet has already been filed in the predicate offence against the petitioners as also the prosecution complaint by the ED before the Special Court. In view thereof, since the trial before the PMLA Court was for framing of charges, the Court desisted from making any observation on merits of the matter, except for the purposes of weighing various factors necessary for grant of regular bail and factors as envisaged under Section 45.

Referring to the judgment Gautam Kundu v. Enforcement Directorate⁴⁷, and the Vijay Madanlal judgment, the Court reiterated that money laundering is a separate class of offence altogether requiring effective and stringent measures to combat the menace of generation of proceeds of crime. The grant of bail even though regarded as an important right for the accused cannot be decided mechanically by the courts and must be considered on the basis of objective, discernible judicial parameters on a case-to-case basis.

The Court has to be satisfied as to whether there are reasonable grounds for believing that the appellants are not guilty of the alleged offences as alleged by the ED. The petitioner had been alleged of acquiring, possessing, concealing, and using the process of banks to the tune of Rs 4.81 crores of money for claiming it as an untainted amount. Referring to the definition of “beneficial owner” under Section 2(1)(fa) and “property” under Section 2(1)(v), the Court discussed that the offence of money laundering captures every process and activity in dealing with the proceeds of crime, directly or indirectly. It is not limited to the happening of the final act of integration of tainted property in the formal economy to constitute an act of money laundering itself. The statements of various witnesses recorded by the ED are admissible in evidence in view of Section 50 and perusal of such statements make out a formidable case about the involvement of the petitioners in the commission of the alleged offences.

The Court observed that the petitioner was found to have constituted shell companies and thereafter preparing their sham books of accounts. Thereafter, huge amounts in cash were invested in the said companies to pop up its shareholding. Thus, the petitioner was found to be the conceptualiser, initiator, fund provider and supervisor for the entire operation to procure the accommodation, share capital/premium entries in the shell companies so constituted. The petitioner, through his family members, was controlling all the companies and was thus the “beneficial owner” under Section 2(1)(fa) PMLA. He was the one who had conceptualised the idea of accommodation entries against cash, aggregating to Rs 4.81 crores approximately, received through the Kolkata based entry operators. Thus, sufficient material had been collected by the ED to show that all the petitioners are “prima facie” guilty of the alleged offences. Accordingly, the appellant had failed to comply with the twin mandatory conditions laid down under Section 45 PMLA and as rightly recorded by the High Court, was not entitled to be enlarged on bail. Accordingly, the appeals of the petitioners were dismissed.

***

(13) Yash Tuteja v. Union of India⁴⁸

(Delivered on 8-4-2024)

Coram: 2-Judge Bench of HM Abhay S. Oka and Ujjal Bhuyan, J.

Authored by: HM Abhay S. Oka, J.

The petitioner’s laid challenge to the complaint case filed by the ED under Section 44(1)(b) PMLA. The scheduled offences in relation to which the complaint was filed were registered under various sections of the Information Technology Act read with Sections 120-B, 191, 199, 200 and 204, Penal Code against the petitioner. Except for Section 120-B none of the offences are scheduled offences under Section 2(1) PMLA. The petitioner thus contended that merely on the basis of offence of conspiracy under Section 120-B, the ED could not have sprung into action against them nor registered Enforcement Case Information Report and filed a complaint case on the basis thereof. Relying on the judgment of Pavana Dibbur case⁴⁹, the Supreme Court noted that if an accused shown in the complaint filed by ED is not an accused in the scheduled offence, he will stand benefitted from the acquittal of all the accused in the scheduled offence or their discharge in the trial. Likewise, he will also get the benefit of the order of quashing of the proceedings of the scheduled offence. The offence under Section 120-B, Penal Code becomes a scheduled offence only if the conspiracy so alleged is of committing an offence specifically included in the schedule to the PMLA.

In view of the aforesaid dicta of Pavana Dibbur case the Supreme Court therefore concluded that conspiracy alleged by the ED must be of committing an offence which is specifically included in the schedule. Per contra in the case at hand the offences alleged in the complaint by the ED were all those which were non-scheduled offences, and the condition precedent for existence of proceeds of crime was not satisfied. The condition precedent; being the existence of a scheduled offence. If there are no proceeds of crime, resultantly even the offence under Section 3 PMLA is not made out since the existence of proceeds of crime is a condition precedent for Section 3 offence. The Special Court is therefore obligated to apply its mind to the question whether a prima facie case of a commission of an offence under Section 3 PMLA is made out at all or not in a complaint filed under Section 44(1)(b) by the ED. This is because the rigours of Sections 200 to 204, Criminal Procedure Code apply equally to the complaint proceedings instituted by the ED before the Special Court. If no prima facie case is made out, the Special Court is obligated to dismiss and reject the complaint under Section 203. The Supreme Court accordingly held that no purpose will be served by directing the Special Court to apply its mind when admittedly there were no proceeds of crime, nor Section 3 PMLA was constituted.

The Supreme Court accordingly quashed the complaint lodged by the Enforcement Case Information Report before the Special Court by partly allowing the writ petitions.

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(14) Sunil Kumar Agrawal v. Enforcement Directorate⁵⁰

(Delivered on 8-4-2024)

Coram: Single Judge Bench of HM Narendra Kumar Vyas, J.

The matter related to the second bail application filed under Section 439, Criminal Procedure Code by the petitioner arrested by the ED, which had registered an Enforcement Case Information Report on the basis of FIR in relation to scheduled offences registered at Bengaluru. The allegation in the principal FIR was that Suryakant Tiwari and other persons had conspired and had obstructed the income tax officials from carrying out their official duties and destroyed crucial incriminating documents, digital evidences about the alleged illegal extortion on coal transportation. Huge amounts in cash were collected by the said kingpin Suryakant Tiwari and his associates. Rs 25 per ton of unauthorised cash of coal was being collected over and about the legal amount against coal delivery orders. It was further alleged that unaccounted cash generated from illegal levy on coal transport revealed profits of more than 500 crores in 16 months from different kinds of levies. The applicant at hand Sunil Kumar Agrawal was alleged to be promoter of certain companies having close relationship with Suryakant Tiwari, who had helped him in acquiring coal washeries by paying huge amounts in cash. Large amounts of illegally acquired cash was thus layered in these transactions of acquisition of coal washeries. The applicant was alleged to have played active role in these transactions to layer and obfuscate the real ownership of these tainted properties, the benami owner and holder of which was Suryakant Tiwari himself. On the aforesaid allegation after inquiry, the ED also filed a complaint case under Section 45 PMLA before the Special Court. The earlier bail application of the petitioner was rejected on the ground that the applicant was also actively involved in the laundering of proceeds of crime of the said Suryakant Tiwari.

The second application was moved on chain circumstances and discovery of new facts, post rejection of the first bail application. The applicant contended that he is rather a victim of the extortion syndicate, who has been projected as an accused by the ED. He challenged the arrest affected by ED under Section 19 and the remand order passed by the Special Judge on the ground that they never disclosed any substantial grounds of arrest. Relying on various judgments of the Supreme Court, the applicant contended that grounds of arrest were not furnished to him and were not sufficient enough to have permitted ED to keep him in custody.

The ED on the contrary opposed the bail application contending that the applicant is one of the kingpin of the offence, having close relationship with the said Suryakant Tiwari. He has been holding various assets purchased in his company’s name as the benami of the co-accused Suryakant Tiwari.

The Court accordingly framed two essential issues for consideration; whether remand order passed by the Special Judge was defective, entitling the applicant-accused to be released on bail; and whether the applicant fulfilled the twin conditions of Section 45 PMLA for grant of bail.

On the first issue of remand order being defective and the rigours of Section 19 being complied with at the stage of arrest, the High Court held that any non-compliance of the mandate of Article 19(1) would vitiate the very arrest itself. The authorised officer, after effecting the arrest is obligated to forward a copy of the order together with the material in his custody constituting the basis of arrest to the adjudicating authority in a sealed envelope within the time period prescribed thereunder. The Court found that the grounds of arrest as recorded by the ED has reasons to believe that the petitioner was prima facie involved in the commission of the offence referred to and reproduced the entire document. It was found that the various coal washery owners were forced and coerced into selling their companies under duress by the applicant at the instance of Suryakant Tiwari. The applicant was stated to have knowingly assisted Suryakant Tiwari in laundering the proceeds of crime in the above manner by layering of the tainted money and being projected as untainted properties. After examining the detailed grounds of arrest, the Court returned a finding that there were reasons to believe for the arresting authority regarding involvement of the applicant in the commission of offences under the PMLA.

The arrestee post arrest was produced before the Special Court, the remand order of which also was referred to and perused by the High Court. The High Court observed that even the remand order has sufficiently and categorically recorded its reason and satisfaction for remanding the applicant to the custody of ED. Thus, not only there was compliance of Section 19 PMLA in terms of the letter and spirit of the judgment of the Supreme Court in Pankaj Bansal v. Union of India⁵¹, but also that there was no defect in the remand order.

On the second issue of petitioner meeting the twin conditions for grant of bail as stipulated under Section 45, the Court stated that in view of the conduct of petitioners of destroying various devices and documentary evidences, it is clear that there is a reasonable apprehension of the witnesses being tampered and material evidence being disturbed by the applicant. Referring to the judgment of Saumya Chaurasia v. Enforcement Directorate⁵² of the Supreme Court, High Court observed that the Court is only required to form a prima facie opinion about the complicity of the accused person whilst granting or refusing to grant bail under the PMLA. Referring further to the judgment of Satyendar Kumar Jain case⁵³ of the Supreme Court, Court stated that the present applicant has found to have played a specific role having close relationships with Suryakant Tiwari. He has also played role of a kingpin in effecting transactions to alienate the ill-gotten proceeds of crime and take them far away from the arms of income tax and Enforcement Departments and to prevent their attachment and to claim them as untainted assets. The applicant therefore failed to fulfil the twin conditions of Section 45 PMLA and also failed to reverse the burden of proof and dislodge the prosecution case which is mandatory requirement to get bail. Referring to the judgment of Enforcement Directorate v. Aditya Tripathi⁵⁴, the High Court held that investigation for predicate offence and investigation by the ED for the offence under the PMLA both are entirely different and distinct. The High Court cannot consider the allegations made in relation to the scheduled offence or the factum of filing of charge-sheet in relation to the scheduled offence as a criteria for granting bail in a separate Enforcement Case Information Report register under the PMLA. What is to be seen is investigation by the ED for the scheduled offences under the PMLA and their progress. Accordingly, considering the role played by him, the High Court declined to enlarge the application on bail, thereby rejecting the Section 439 application.

***

(15) Sunil Yadav v. Enforcement Directorate⁵⁵

(Delivered on 12-4-2024)

Coram: Single Judge Bench HM Sujit Narayan Prasad, J.

The application of swine under Sections 439 and 440, Criminal Procedure Code for grant of regular bail in connection with the Enforcement Case Information Report registered by the ED. The ED had alleged that the petitioner as an active accomplice to the main accused Pankaj Mishra, restrained the complainant from participating in a tender of toll plaza. Accordingly, the FIR under the scheduled offences came to be registered against the petitioner involving the allegation of illegal collection of levies from the trucks carrying stone chips through the Barwaha Toll. Through these illicit activities, total cash amounting to Rs 5.34 crores was generated and accumulated, recovered from various accomplices of the said main accused Pankaj Mishra. The petitioner was also alleged of being involved in the activities where illegal mining and transportation at the behest of the said principal accused, as also activities relating to money laundering of acquisition, possession, concealing and layering the proceeds of crime. The complainant was even attacked physically and assaulted at the behest of the accused persons.

The primary contention of the petitioner was that he is not an accused in the scheduled offence and therefore, by merely inserting penal offence under Section 120-B, Penal Code, offence cannot be said to be committed under Section 3 PMLA. Merely because some amount of money came to be deposited in the bank account of the petitioner cannot attract the rigours of Section 3 PMLA and the entire Enforcement Case Information Report/complaint must be taken into consideration regarding the involvement of the petitioner in the illicit activities alleged against the principal accused, Pankaj Mishra.

The Court considered the various provisions of the PMLA, the purpose and object behind its enactment and held that the process or activity connected with proceeds of crime is a continuing activity till such time the person is directly or indirectly enjoying the proceeds of crime and using the tainted property for projecting it as untainted. Referring to Section 50 as interpreted in the Vijay Madanlal judgment, the High Court held that the requirement of the person giving statement to the ED to sign the same is inserted to ensure that there is no falsity or incorrectness in the same. He may be punished for giving an incorrect statement under Section 63 in case the same is found to be wrong at a later stage. A person is not deemed to be a witness against himself under Article 20(3) by merely giving a statement to the ED in response to summons issued under Section 50. However, if the statement is recorded after formal arrest by the ED, then consequences and rigours of Article 20(3) or Section 25, Evidence Act would stand attracted.

Referring to Section 45 and the twin conditions imbibed thereunder as a precondition for grant of bail, the Court held that in whatever form the relief is couched including the nature of proceedings if the person is seeking enlargement on bail, the twin conditions under Section 45 would get automatically attracted. Be it an application for bail under Section 438 or Section 439, Criminal Procedure Code, the presumption under Section 24 shall stand attracted, meaning thereby that unless the contrary is proved the authority or the Court shall presume that proceeds of crime are involved in money laundering. The burden to prove otherwise that proceeds of crime are not involved lies on the appellant, and this burden would have to be discharged even in the consideration of the bail application under Section 45.

The ED carried out searches at the residence and business premises of the various accused persons including the petitioner, which revealed that the petitioner was actively involved in the transportation of illegally mined materials in support of the principal accused. Several registers containing the details of such trucks and quantity of stone chips/stones were seized and retention of the same was also confirmed by the adjudicating authority. The statements recorded by the ED of various employees and persons connected with the companies and firms operated by the petitioner and the principal accused also confirmed and corroborated the role of petitioner. It was revealed that significant cash deposits had been carried out in the bank accounts of one transport company and bank accounts of the petitioner stated to be the consideration for transportation of various minerals illegally. Thus, the petitioner was found to be directly linked with the process and activity connected with the proceeds of crime including its concealment, acquisition, possession and use as well as claiming and projecting the proceeds of crime as untainted property. An amount of around Rs 20.67 crores was found to have been deposited in various bank accounts under the petitioner’s control, the said cash amount was nothing but a presumed proceeds of crime. The proceeds of crime generated from illegal mining activities and their transportation were been found to be laundered through diverse methods one of which involved making incremental cash deposits in the bank accounts in the piecemeal manner so as to project the tainted property as an untainted one.

Even otherwise, the petitioner was also liable to proceeded with since he had knowingly assisted the concealment of proceeds of crime and its usage. It is not necessary that a person being prosecuted for an offence under Section 3 PMLA must be shown as accused necessarily in the scheduled offences as well . And that a person even not accused in the scheduled offence can be prosecuted separately, independently under the PMLA. Any property directly or indirectly derived or obtained as a result of any criminal activity relatable to the scheduled offence is classed as a proceeds of crime. The Court accordingly applying the ratio of the judgments of the Supreme Court in the P. Chidambaram case⁵⁶ and Tarun Kumar case⁵⁷, held that the accused has failed to meet the twin tests and bail is liable to be rejected. Repelling the contention of enlargement of bail on the ground of parity, the High Court held that granting parity is not the law and whilst applying the said principle, the Court is required to focus upon the role attached to the accused whose application is under consideration. Whilst deciding the bail application in grave economic offences it is the utmost duty of the Court to examine the nature and gravity of the alleged offence. Accordingly, the bail application was rejected.

***

(16) Lalita Mohan Das v. Enforcement Directorate⁵⁸

(Delivered on 26-4-2024)

Coram: Single Judge Bench HM A.K. Mohapatra, J.

The application was filed by the petitioner invoking the inherent jurisdiction of the High Court under Section 482, Criminal Procedure Code for quashing the order passed by the Special Court (PMLA) which declined to allow exemption from personal attendance to the petitioner by rejecting his application filed under Section 205, Criminal Procedure Code. The petitioner was being proceeded against through FIR registered under various provisions of the PCA. On the basis of the scheduled offence, ED also registered a case against the petitioner.

When the trial of both the scheduled as well as the PMLA complaint was pending before the Sessions Court, petitioner moved an application under Section 205, Criminal Procedure Code for dispensing with his personal presence and appearance before the said Court, on the ground that such orders by invoking powers under Section 205, Criminal Procedure Code cannot be passed by the trial court. The petitioner being aggrieved approached the High Court, contending primarily that provisions of Section 205, Criminal Procedure Code shall apply even to the PMLA trials as there is no prohibition by way of any express prohibition under the PMLA barring grant of such relief to him. The trial court had disallowed the application under Section 205, Criminal Procedure Code referring to Section 45 PMLA holding that in cases of such special offences, in view of the restrictive provisions incorporated to secure the attendance of the accused, such a blanket exemption cannot be granted. The petitioner further contended that Section 45 would not at all be attracted in the application filed by the petitioner, more so when the proceeds of crime involved is less than Rs 1 crore qua the petitioner.

The High Court whilst considering the submissions of the petitioners relied upon the judgment of Bhaskar Industries Ltd. v. Bhiwani Denim & Apparels Ltd.⁵⁹ of the Supreme Court, which held that powers under Section 205, Criminal Procedure Code must be exercised sparingly and personal appearance should be dispensed with of the accused when it is likely to cause great hardships on him. However, such a discretion under Section 205 is not to be exercised in a routine manner or on mere asking of the accused petitioner. The coordinate Bench of the Orissa High Court in Chintan Joshi v. Niranjan Behera⁶⁰, had already declined such a request on the ground that no hardship was demonstrated by the accused therein for grant of exemption from personal appearance. The Supreme Court also did not interfere in the aforesaid judgment of the Orissa High Court, except observing that for sufficient and cogent reasons, the petitioner can always make an application through his advocate for grant of exemption from personal appearance. However, the Supreme Court also declined to grant any blanket exemption from appearance for all times to come to the petitioner Chintan Joshi therein.

Accordingly, the High Court held that Section 205, Criminal Procedure Code application is clearly maintainable even in cases involving the PMLA and the Bar under Section 45 PMLA shall not be attracted to such an application. However, the trial court must be duly satisfied regarding the existence of sufficient and cogent reasons leading to inability of the petitioner to appear before the trial court. Accordingly, the observation of the trial court that application under Section 205 is barred by Section 45 was set aside by the High Court whilst remanding the matter back to the Sessions Court cum Special Judge for considering the said application afresh by taking into consideration the grounds raised by the petitioner and exercising the discretion suitably in light of the observations made in the judgment. The Section 482 application was accordingly disposed of by the High Court.

***

(17) Chetan Gupta v. Enforcement Directorate⁶¹

(Delivered on 29-4-2024)

Coram: Anoop Chitkara, J.

The petitioner by way of Section 482, Criminal Procedure Code petition sought quashing of the Enforcement Case Information Report registered by the ED; the show-cause notices and summons issued on the basis thereof by the ED requiring his appearance before it. There were multiple reliefs, with the principal relief pertaining to the quashing of the Enforcement Case Information Report so registered by the ED.

Factual matrix of the case

The Vigilance Bureau, Ludhiana registered FIR under various Sections 409, 420, 465, 467, 471, 201, 120-B, Penal Code and Sections 7, 8, 9,13(1)(c) and (d) read with Sections 13(2) and 14 PCA. The allegations pertain to payment of illegal gratification in the setting up of and development of Ludhiana City Centre by the Improvement Trust, Ludhiana in 1999. On the basis of the said FIR, Enforcement Case Information Report came to be registered by the ED, Jalandhar against the petitioner on the allegations of laundering over and circulation of proceeds of crime generated out of the said client under Sections 3 and 4 PMLA in 2013. The Enforcement Case Information Report admittedly had neither been supplied to the petitioner, nor to the Court concerned during the course of investigation, ED thus issued various summons under Section 50 to the petitioner.

Meanwhile, during the pendency of the aforementioned investigation by the ED, the Vigilance Bureau, Ludhiana filed a cancellation report under Section 173(8), Criminal Procedure Code before the Vigilance Court, stating that no substantive evidence of fact came on record to prove the commission of any offence as alleged in the FIR. On the basis thereof the petitioner stood discharge in the scheduled offence so alleged to have been committed by him on the basis of which the Enforcement Case Information Report in question was so registered by the respondent ED. In short, the proceedings in relation to the scheduled offence, therefore came to be closed by the investigating authorities. The petition in the above backdrop, initiated Section 482 proceedings before the High Court challenging the continuation of the PMLA investigation and proceedings against him, essentially on the ground that when the scheduled offence itself had been closed as having not been proved, there was no question of existence or generation of any proceeds of crime to constitute any offence under the PMLA. Pertinently, the trial court had also accepted the closure report filed by the Vigilance Bureau, Ludhiana.

The ED opposed the contention of the petitioner, submitting that the petition is not maintainable since Enforcement Case Information Report is an internal document and there is no obligation to supply the copy of the same. ED further contended that since it is an internal document, which is only for the reference of commencing the investigation, therefore a petition under Section 482 is not maintainable seeking quashment of the same. It is neither a statutory document, nor does the PMLA require furnishing of copy thereof to the accused, unlike the FIR registered under Section 154, Criminal Procedure Code. Therefore, the quashment of the same can never be sought for.

Consideration by the Court

Referring to the Vijay Madanlal judgment and that of Madras High Court in N. Dhanraj Kochar v. Enforcement Directorate⁶², Jitendra Nath Patnaik v. Enforcement Directorate⁶³ (Orissa High Court) and Pawan Insaa v. Enforcement Directorate⁶⁴ (Punjab and Haryana High Court), the Court reiterated that Enforcement Case Information Report is not a document registered under Criminal Procedure Code and therefore cannot be treated akin to an FIR. There is no obligation for the ED to send the copy of the Enforcement Case Information Report to the Judicial Magistrate under Section 157, Criminal Procedure Code, neither can such registration nor can such Enforcement Case Information Report be subject to judicial review under Section 482, Criminal Procedure Code. Enforcement Case Information Report does not lead to launching of prosecution, which commences only when a complaint is launched formally under Section 44 PMLA. The registration of Enforcement Case Information Report is thus an administrative document, which precedes the commencement of prosecution against individuals involved in the offence of money laundering governed by special dispensation under the PMLA. Therefore, powers under Section 482, Criminal Procedure Code cannot be exercised for quashing of Enforcement Case Information Report per say.

However, the Court can always examine the consequential proceedings registered in pursuance of the Enforcement Case Information Report by the ED and any steps being taken in pursuance thereof. The remaining prayers to quash the complaint, summons as well as other subsequent proceedings can always be considered by the High Court. Referring to the judgments of the Supreme Court in Pavana Dibbur case⁶⁵, Parvathi Kollur v. State⁶⁶ and Yash Tuteja case⁶⁷, the High Court quoted the law laid down by the Supreme Court that if the prosecution for the scheduled offence ends in the acquittal of all the accused or discharge of all the accused or the proceedings of scheduled offence being quashed in its entirety then there cannot be any proceeds of crime. A complaint under Section 3 PMLA and the resultant allegation of commission of offences committed thereunder shall also disappear entirely from the canvas. The condition precedent for the existence of proceeds of crime is the existence of a scheduled offence. If there is no proceeds of crime, then Section 3 PMLA ceases to apply. The Special Court therefore is obligated to apply its mind when a prosecution complaint is filed by the ED before it about its maintainability and whether a prima facie case of a commission of offence under Section 3 PMLA is made out or not. Sections 200 to 204, Criminal Procedure Code applies squarely to the complaint filed by ED and if the Special Court is of the opinion that no prima facie case of any offence is made out under the PMLA, exercising its powers under Section 203, Criminal Procedure Code the Special Court must dismiss the complaint. The application of mind by the Special Court post filing of complaint is therefore not only obligatory, but mandatory in such cases. On the same lines are also the judgments of Naresh Goyal v. Enforcement Directorate⁶⁸, Nik Nish Retail Ltd. v. Union of India⁶⁹ (Calcutta High Court), Debendra Kumar Panda v. Union of India⁷⁰ (Orissa High Court) and Rajiv Channa v. Union of India⁷¹ (Delhi High Court), wherein a similar view has been taken and followed.

The High Court further held that the proceedings under the PMLA are always subservient and secondary to the primary proceedings under some predicate offence. Giving the example of “a wall and its plaster”, Court stated that for plastering to be done and applied, existence of a wall is necessary if the wall gets broken, the plaster automatically break off and cannot stand on its own.

Accordingly in the view of the aforesaid judgments, Court held that the proceedings initiated by the ED against the petitioners arising out of the Enforcement Case Information Report under challenge were also liable to be closed, with a liberty to revive in the eventuality of potential reversal of the order in the appellate proceedings, closing the predicate offence. The petition filed by the petitioner was accordingly allowed.