2025 (5) TMI 655 - HC - Money Laundering

Money Laundering - seeking grant of regular bail - predicate/scheduled offence - misappropriation of funds availed through loan from the consortium of banks and thereafter diversion of the same into different entities - twin conditions mandated under Section 45 of the PMLA for grant of bail have been satisfied by the applicant or not - HELD THAT - The role of the present applicant as pointed out hereinabove was that he had assisted the main beneficiary Rohit Aggarwal who was promotor and ex-director of the accused company M/s Sunstar Overseas Pvt. Ltd. in facilitating the diversion of proceeds of crime through various entities including M/s Shivakriti Agro and finally acquiring the stakes of the accused company through Umaiza while it was under CIRP. It is relevant to note that the alleged main beneficiary of the proceeds of crime Rohit Aggarwal has not since been arrested in the present case. Even Ajay Soni ex-director and shareholder of M/s Shivakriti Agro has been cited as witness. It is matter of record that the present applicant was summoned by the respondent/ED and he had joined investigation in pursuance of the said summons from 16.01.2024 on 10 occasions and thereafter he was finally arrested on 01.07.2024. In view of the above it is submitted that there was no need to arrest the present applicant especially when the main beneficiary had not been arrested even on account of an order passed by a Court. It is further submitted that the respondent/ED did not provide reasons or beliefs as recorded under Section 19 of the PMLA to the applicant while making his arrest. It is also matter of record that as per the reply (para 6) of the respondent/ED investigation is still pending in the present case. It is also not the case of the respondent/ED that any money trail leading to the present applicant has been discovered or any property had been acquired by him from the alleged proceeds of crime. As noted hereinabove the trial in the predicate/scheduled offence has not even started and is at the preliminary stage. The prosecution therein has cited 98 witnesses and the trial is not likely to be completed in a reasonable time. There are nearly 8000 documents in the predicate/scheduled offence registered with CBI and around 6000 documents in the present complaint case filed by the respondent/ED. Even as per the reply of the respondent/ED investigation is still continuing with respect to identification and location of the remaining proceeds of crime and determining the role of other persons/entities involved in the present case. The applicant is in judicial custody since 01.07.2024 and has undergone incarceration for more than 10 months. Keeping in mind the mandate of the Hon ble Supreme Court in V. Senthil Balaji 2024 (9) TMI 1497 - SUPREME COURT trial in the present complaint case is yet to commence and would take some time to conclude. The continued incarceration of the applicant with no possibility of trial being completed in near future restrictions provided under Section 45 of the PMLA would not come in way of ensuring the right to personal liberty and speedy trial under Article 21 of the Constitution of India. Conclusion - i) The twin conditions under Section 45 of the PMLA do not operate to deny bail when the trial is unlikely to conclude in a reasonable time and the applicant has undergone substantial incarceration. ii) The failure to provide grounds of arrest in writing rendered the arrest illegal. The absence of direct evidence linking the applicant to proceeds of crime and the pendency of trial further support bail. The applicant is directed to be released on bail subject to fulfilment of conditions imposed - bail application allowed.

Summary

The core legal questions considered by the Court in this matter include:

1. Whether the applicant is prima facie guilty of the offence of money laundering under Section 3 read with Section 70 and punishable under Section 4 of the Prevention of Money Laundering Act, 2002 (PMLA), based on the allegations and evidence presented by the Enforcement Directorate (ED).

2. Whether the twin conditions mandated under Section 45 of the PMLA for grant of bail have been satisfied by the applicant, i.e., whether there are reasonable grounds to believe that the applicant is guilty of the offence and whether the applicant is not likely to commit any offence while on bail.

3. The legality and propriety of the applicant's arrest, including whether the grounds of arrest were properly communicated as required under Section 19 of the PMLA and constitutional mandates under Article 22 of the Constitution of India.

4. The relevance and impact of the pendency and stage of trial in the predicate/scheduled offence registered under the Indian Penal Code (IPC) and Prevention of Corruption Act (PC Act) on the proceedings under the PMLA.

5. Whether the applicant's role as alleged, particularly in connection with sham transactions and diversion of proceeds of crime through various entities including M/s Shivakriti Agro Pvt. Ltd. and Umaiza Infracon LLP, is established sufficiently to deny bail.

6. The applicability of judicial precedents regarding the grant of bail in PMLA cases, especially in light of the right to speedy trial and liberty under Article 21 of the Constitution of India.

7. The effect of setting aside of the fraud declaration by Punjab National Bank (PNB) on the legitimacy of the FIR and ongoing criminal investigation.

Issue-wise Detailed Analysis

1. Prima Facie Guilt and Role of the Applicant in Money Laundering

The relevant legal framework includes Sections 3, 4, and 70 of the PMLA, which criminalize money laundering and prescribe punishment for the offence. The predicate offence under IPC Sections 120B, 406, 409, 420 and PC Act Section 13(2) read with 13(1)(d) forms the basis for the money laundering charge.

The ED's case alleges that the applicant, initially an employee and later COO, director, and shareholder of M/s Shivakriti Agro Pvt. Ltd., was instrumental in diverting proceeds of crime through sham transactions involving various entities controlled by ex-directors/promoters of the accused company, M/s Sunstar Overseas Ltd. The applicant is said to have facilitated concealment, diversion, and projection of proceeds of crime as untainted property, including involvement in job work agreements that allowed use of accused company's assets to siphon funds.

The Court noted the statements recorded under Section 50 of the PMLA from the applicant and co-accused, which implicated the applicant as a key managerial person and confidante of the main beneficiary, Rohit Aggarwal. However, the applicant contended that these statements lack corroborative evidence and are inadmissible without a money trail directly linking him to proceeds of crime.

The Court observed that while the allegations are serious, the main beneficiaries and promoters named in the predicate offence have not been arrested, and some co-accused remain at large or are on bail, which raises questions about selective arrests.

2. Applicability of Section 45 of the PMLA and Bail Conditions

Section 45 of the PMLA imposes stringent conditions for grant of bail, requiring satisfaction of twin conditions: reasonable grounds to believe the accused is guilty and no likelihood of committing further offences while on bail.

The Court examined whether these conditions were met. The applicant argued that he has cooperated with investigation, is not a flight risk, and has roots in society. The ED countered that the applicant's involvement in diversion of funds and sham transactions warranted denial of bail.

The Court referred extensively to recent Supreme Court precedents, particularly V. Senthil Balaji and Vijay Nair, which emphasize that while PMLA imposes a higher threshold for bail, Constitutional Courts retain the power to grant bail on grounds of violation of Article 21, especially where trial is unlikely to conclude in reasonable time and incarceration has already been prolonged.

The Court noted that the applicant has been in custody for over 10 months, the trial in the predicate offence is at a preliminary stage with 98 witnesses cited, and the trial in the PMLA case has not commenced. The Court held that continued incarceration under such circumstances would violate the right to liberty and speedy trial.

3. Legality of Arrest and Communication of Grounds

The arrest of the applicant was challenged on the ground that the ED failed to provide written grounds of arrest as mandated under Section 19 of the PMLA and Articles 22(1) and 22(5) of the Constitution, which require that the arrested person be informed of the grounds of arrest to enable defense and bail application.

The Court relied on the judgment in Prabir Purakayastha, which distinguishes between general reasons for arrest and specific grounds of arrest, emphasizing that the latter must be personal and detailed. It was found that the arrest memo did not adequately communicate the grounds, rendering the arrest arbitrary and illegal.

4. Impact of Fraud Declaration Set Aside on FIR and Investigation

The applicant relied on an order setting aside the fraud declaration by PNB, arguing that the predicate offence's foundation is doubtful.

The Court referred to a Coordinate Bench judgment holding that procedural irregularities in fraud classification do not vitiate criminal investigations unless the FIR is malicious or lacks legal foundation. The criminal investigation can proceed independently of civil or administrative orders on fraud classification. Thus, the setting aside of the fraud declaration does not nullify the FIR or impede investigation.

5. Reliance on Statements under Section 50 of PMLA and Evidence

The applicant contended that the ED's case rests heavily on statements under Section 50 of the PMLA by co-accused, which are not substantive evidence and cannot alone justify arrest or denial of bail.

The Court acknowledged that such statements require corroboration and cannot be the sole basis for establishing guilt. The absence of direct money trail or material evidence linking the applicant to proceeds of crime weakens the case against him.

6. Trial Stage and Right to Speedy Trial

The Court emphasized the significance of the trial stage in the predicate offence and PMLA case. With the trial yet to commence and no likelihood of early conclusion, prolonged detention would infringe Article 21 rights.

Judicial precedents were cited to underscore that stringent bail provisions cannot override constitutional rights, and bail should be granted where trial delays are excessive and detention disproportionate.

7. Treatment of Competing Arguments and Parity

The applicant argued selective arrest and lack of parity with other accused who have not been arrested or have been granted bail. The Court noted this disparity and referred to Supreme Court observations that bail may be granted where the mastermind or main beneficiary remains at large, to prevent miscarriage of justice.

The ED maintained that the applicant's role was distinct and active, justifying arrest and denial of bail. However, the Court found that the absence of a money trail and the ongoing investigation militate against prolonged custody.

Conclusions

The Court concluded that the twin conditions under Section 45 of the PMLA do not operate to deny bail when the trial is unlikely to conclude in a reasonable time and the applicant has undergone substantial incarceration. The failure to provide grounds of arrest in writing rendered the arrest illegal. The absence of direct evidence linking the applicant to proceeds of crime and the pendency of trial further support bail.

The Court granted bail subject to stringent conditions including personal bond, informing change of address, restrictions on travel abroad, maintaining mobile connectivity, and prohibition on tampering with evidence or influencing witnesses, with liberty to the prosecution to seek cancellation if conditions are violated.

Significant Holdings

"The Constitutional Courts cannot allow provisions like Section 45 (1) (ii) to become instruments in the hands of the ED to continue incarceration for a long time when there is no possibility of a trial of the scheduled offence and the PMLA offence concluding within a reasonable time. If the Constitutional Courts do not exercise their jurisdiction in such cases, the rights of the undertrials under Article 21 of the Constitution of India will be defeated."

"The procedural irregularities in the fraud classification process do not ipso facto vitiate the criminal investigation unless it is shown that the FIR is malicious or lacks legal foundation altogether."

"There is a significant difference in the phrase 'reasons for arrest' and 'grounds of arrest'. The 'grounds of arrest' must convey all basic facts on which the accused is being arrested so as to provide an opportunity of defending himself."

"Bail is the rule, and jail is the exception."

"The stringent provisions for grant of bail under the PMLA do not take away the power of Constitutional Courts to grant bail on grounds of violation of Part III of the Constitution."

"The absence of a money trail or evidence linking the accused to proceeds of crime weakens the case for denial of bail."