2025 (6) TMI 1182 - HC - Money Laundering

Seeking grant of regular bail - Money Laundering - scheduled offence - obtaining a loan from United Bank Ltd. Qatar ostensibly for the expansion of his business operation in Qatar wilfully defaulted on its repayment misused and diverted the funds to India through illicit channels and thus cheated the bank - diversion of funds and the failure to fulfil the obligations of repayment - applicability of the twin conditions under Section 45(1) of the PMLA - HELD THAT - The proceeds of crime being the core of the ingredients constituting the offence of money laundering that expression needs to be construed strictly. All properties recovered or attached by the investigating agency in connection with the criminal activity relating to a scheduled offence under the general law cannot be regarded as proceeds of crime. There may be cases where the property involved in the commission of scheduled offence attached by the investigating agency dealing with that offence cannot be wholly or partly regarded as proceeds of crime within the meaning of Section 2(1)(u) of the PMLA so long as the whole or some portion of the property has been derived or obtained by any person as a result of criminal activity relating to the stated scheduled offence. To be proceeds of crime therefore the property must be derived or obtained directly or indirectly as a result of criminal activity relating to a scheduled offence. It is the prosecution version that the said proceeds of the crime were utilized for acquiring immovable assets in the name of the benami individuals by the petitioner. Thus the proceeds of crime could have been obtained by the petitioner only on 14/3/2017 and not before. Therefore any amount credited to the accounts of the petitioner as shown in Table Nos.15 and 16 prior to 14/3/2017 cannot be termed as proceeds of crime. The total amount credited to the petitioner s Axis Bank account after 14/3/2017 from the last six transactions shown in Table No.15 would only come to Rs. 41, 74, 526.5/- which would fall under the first proviso to Section 45 of the PMLA. It is true that the 2nd accused has admitted in his statement dated 27/9/2024 under Section 50 of the PMLA that those properties were purchased from the funds received by him from M/s.Grand Mart Trading Company. However admittedly the 2nd accused has been doing various kinds of business in Qatar for the last few years. He also has business tie-ups with M/s Grand Mart Trading at Grand Mart Hyper Market. In his statement he has stated that he used to receive amount from M/s Grand Mart Trading in Qatar in connection with the business he had with it. To a specific question (Question No.13) in the statement dated 27/9/2024 the 2nd accused has answered that he did not have any association with the petitioner or his business other than his involvement in the wholesale vegetable business at Grand Mart Hyper Market and his engagement was strictly limited to that venture and he did not have any business dealings or partnership with him outside of that context. Thus the statement given by the 2nd accused under Section 50 of the PMLA and relied on by the prosecution are not sufficient to conclude that the properties in the name of the 2nd accused shown in Table No.7 were purchased utilising the proceeds of crime. That apart it is settled that the statement of a co-accused against another co-accused will not have a character of substantive evidence and the prosecution cannot start with such a statement to establish its case. Referring to Section 45 of the PMLA in Vijay Madanlal Choudhary 2022 (7) TMI 1316 - SUPREME COURT (LB) the Supreme Court opined that the provision does not require that to grant bail the court must arrive at a positive finding that the applicant has not committed an offence under the PMLA. Section 45 must be construed reasonably as the intention of the legislature cannot be read as requiring the court to examine the issue threadbare and in detail to pronounce whether an accused is guilty or is entitled to acquittal - The first proviso to Section 45 clearly stipulates that if the amount of money laundering involved is less than one crore rupees the accused can be released on bail notwithstanding the embargo under Section 45(1). Conclusion - Considering all the facts the rigour of Section 45(1) of the PMLA is not attracted to the facts of the case. The investigation is over and complaint has already been filed. The petitioner is in custody for the last more than five months. His further detention is not necessary. Hence the petitioner is entitled for regular bail. The petitioner shall be released on bail on executing a bond for Rs. 5, 00, 000/- with two solvent sureties for the like sum each to the satisfaction of the trial court - bail application allowed.

Summary

The core legal questions considered in this judgment include:

1. Whether the petitioner is entitled to regular bail under the stringent provisions of Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA), given the allegations of money laundering and predicate offences under the Indian Penal Code (IPC).

2. The interpretation and applicability of the twin conditions under Section 45(1) of the PMLA for granting bail, specifically whether there are reasonable grounds to believe the accused is not guilty and not likely to commit an offence while on bail.

3. The determination of whether the alleged proceeds of crime, particularly the loan amount obtained from United Bank Ltd., Qatar, and subsequent transactions, qualify as "proceeds of crime" under the PMLA.

4. The evidentiary sufficiency concerning the alleged diversion and laundering of funds, including the acquisition of immovable properties in the petitioner's or benami individuals' names.

5. The scope and effect of recent Supreme Court precedents interpreting the bail provisions under the PMLA, including the balance between liberty and the rigour of anti-money laundering laws.

Issue-wise Detailed Analysis:

1. Entitlement to Bail under Section 45 of the PMLA:

The legal framework governing bail in PMLA cases is primarily Section 45, as amended in 2018, which imposes stringent conditions for bail. The Section mandates that bail can only be granted if the court has reasonable grounds to believe the accused is not guilty and is unlikely to commit any offence while on bail. The first proviso to Section 45 allows bail if the accused is a woman, minor, sick/infirm, or if the amount involved in money laundering is less than one crore rupees.

The Court noted that these conditions are mandatory and override the general provisions of the Code of Criminal Procedure (Cr.P.C.) due to Sections 65 and 71 of the PMLA, which give the Act overriding effect and restrict the application of Cr.P.C. provisions that are inconsistent with it. The Court emphasized that the limitations under Section 45 are in addition to any other limitations under Cr.P.C. or other laws.

In interpreting these provisions, the Court relied on Supreme Court precedents, particularly Vijay Madanlal Choudhary and Others v. Union of India, which clarified that while Section 45 restricts bail, it does not impose an absolute bar. The principle that "bail is the rule and jail is the exception" remains applicable even under the PMLA, as reiterated in Manish Sisodia v. Directorate of Enforcement and Prem Prakash v. Union of India.

Applying these principles, the Court examined whether the twin conditions under Section 45(1) are satisfied in the present case, finding that the rigour of Section 45(1) was not attracted due to the quantum of alleged proceeds of crime involved.

2. Identification and Characterization of "Proceeds of Crime":

The Court carefully analyzed the definition of "proceeds of crime" under Section 2(1)(u) of the PMLA and the offence of money laundering under Section 3. It highlighted the amendments clarifying that "proceeds of crime" include property derived directly or indirectly as a result of criminal activity relating to a scheduled offence, and that money laundering involves any process or activity connected with such proceeds, including concealment, possession, acquisition, use, or projecting as untainted property.

The Court underscored that the offence of money laundering is distinct from the predicate offence except for the connection via proceeds of crime. It emphasized the necessity for a strict and precise construction of "proceeds of crime," requiring that the property must be derived or obtained "as a result of" the criminal activity.

In the instant case, the prosecution alleged that the petitioner obtained a loan of approximately INR 61.28 crores from United Bank Ltd., Qatar, on 14/3/2017, which was misused and diverted to India, constituting the proceeds of crime. The prosecution further alleged that these funds were used to acquire immovable properties in the petitioner's and benami individuals' names.

However, upon scrutiny of the bank transaction details (Tables 15 and 16 in the complaint), the Court found that most remittances credited to the petitioner's accounts predated the loan disbursal date of 14/3/2017. Only a small amount of Rs. 41,74,526.5/- was credited after this date, falling below the one crore rupees threshold under the first proviso to Section 45. The Court held that amounts credited prior to the date of the alleged predicate offence could not be treated as proceeds of crime.

3. Sufficiency of Evidence Regarding Acquisition of Properties and Benami Transactions:

The prosecution relied on statements under Section 50 of the PMLA and bank transaction records to establish that the petitioner and his associate acquired immovable properties using the proceeds of crime. The Court noted that the 2nd accused admitted receiving funds from M/s Grand Mart Trading but denied any business association with the petitioner beyond a specific venture, limiting the scope of his involvement.

The Court observed that the statements of co-accused cannot be treated as substantive evidence against another co-accused and cannot form the sole basis for conviction. Additionally, the funds transferred to alleged benami individuals such as Ronnie Cherian, Joby Antony, Ashraf Chakkarath, Shoukathali, and Muhammedisha were found to have been transferred before the predicate offence date, weakening the prosecution's claim that these were proceeds of crime.

Therefore, the Court concluded that the prosecution had not established sufficient evidence to prove that the properties were acquired using proceeds of crime or that the petitioner had laundered the alleged amount through benami transactions.

4. Application of Supreme Court Precedents and Interpretation of Bail Provisions:

The Court extensively relied on the Supreme Court's rulings in Vijay Madanlal Choudhary, Manish Sisodia, and Prem Prakash to interpret the bail provisions under the PMLA. These precedents clarified that while the PMLA imposes stricter conditions for bail, the fundamental principle of liberty as the norm and custody as the exception remains intact.

The Court emphasized that Section 45 does not require a detailed inquiry into guilt or innocence at the bail stage but mandates reasonable grounds to believe the accused is not guilty and unlikely to offend again. Given that the major portion of the alleged proceeds of crime was credited before the predicate offence, and the amount involved post-offence was less than one crore rupees, the Court held that the twin conditions for denying bail were not fulfilled.

5. Final Application of Law to Facts and Bail Grant:

Considering the above analysis, the Court found that the petitioner's further detention was not necessary. The investigation was complete, the complaint filed, and the petitioner had been in custody for over five months. The Court granted regular bail subject to conditions including bond execution, non-intimidation of witnesses, non-involvement in similar offences, surrender of passport, and restrictions on travel outside Kerala without prior permission.

Significant Holdings:

"The conditions specified under Section 45 of the PMLA are mandatory and need to be complied with, which is further strengthened by the provisions of Sections 65 and 71 of the PMLA."

"The PMLA has an overriding effect, and the provisions of the Cr. P.C. would apply only if they are not inconsistent with the provisions of the said Act."

"The Explanation inserted to Section 3 by way of amendment of 2019 does not expand the purport of Section 3 but is only clarificatory in nature."

"For being regarded as proceeds of crime, the property associated with the scheduled offence must have been derived or obtained by a person 'as a result of' criminal activity relating to the scheduled offence concerned."

"The statement of a co-accused against another co-accused will not have a character of substantive evidence, and the prosecution cannot start with such a statement to establish its case."

"Section 45 must be construed reasonably as the intention of the legislature cannot be read as requiring the court to examine the issue threadbare and in detail to pronounce whether an accused is guilty or is entitled to acquittal."

"The liberty of the individual is always a rule and deprivation is the exception. Deprivation can only be by the procedure established by law, which has to be a valid and reasonable procedure."

"The rigour of Section 45(1) of the PMLA is not attracted to the facts of the case."

Core principles established include the necessity for strict adherence to the twin conditions under Section 45 for bail in PMLA cases, the requirement that proceeds of crime must be directly or indirectly derived as a result of the predicate offence, and the cautious approach towards relying on co-accused statements as substantive evidence. The judgment reaffirms the primacy of individual liberty balanced against the seriousness of economic offences, with bail being the norm subject to compliance with statutory conditions.