2025 (4) TMI 1602 - HC - Money Laundering

Money Laundering - proceeds of crime - reasons to believe - arrest of the petitioner complied with the mandatory provisions of Section 19(1) of the Prevention of Money Laundering Act 2002 (PMLA) or not - twin conditions under Section 45 of the PMLA have been fulfilled to justify bail or not - HELD THAT - The Hon ble Apex Court in the said judgment has further laid down that the twin conditions as to fulfil the requirement of Section 45 of the Act 2002 before granting the benefit of bail is to be adhered to which has been dealt with by the Hon ble Apex Court in Vijay Madanlal Choudhary and Ors. Vs. Union of India and Ors. 2022 (7) TMI 1316 - SUPREME COURT (LB) wherein it has been observed that the accused is not guilty of the offence and is not likely to commit any offence while on bail - In the judgment rendered by the Hon ble Apex Court in Vijay Madanlal Choudhary and Ors. Vs. Union of India and Ors. as under paragraph-284 it has been held that the Authority under the 2002 Act is to prosecute a person for offence of money-laundering only if it has reason to believe which is required to be recorded in writing that the person is in possession of proceeds of crime . Only if that belief is further supported by tangible and credible evidence indicative of involvement of the person concerned in any process or activity connected with the proceeds of crime action under the Act can be taken forward for attachment and confiscation of proceeds of crime and until vesting thereof in the Central Government such process initiated would be a standalone process. Issue of legality of Arrest - HELD THAT - It is evident from the record that the Petitioner was informed about the ground of arrest immediately by the Enforcement Directorate with his acknowledgement. Further it is also an admitted position that within 24 hours of the arrest the arrestee was supplied with the remand application which virtually contains all the grounds of arrest and therefore the legal requirement of informing the grounds of arrested as soon as may be also stood fulfilled both as per the statutory requirement under S. 19 (1) of the PMLA as well as the constitutional mandate under Article 22 (1) of the Constitution of India. The Hon ble Supreme Court in the case of Pankaj Bansal 2023 (10) TMI 175 - SUPREME COURT had made the requirement of furnishing grounds of arrest in writing only prospective by using the word henceforth . The same has also been clarified by the Hon ble Supreme Court in Ram Kishor Arora (supra) at Para 23. Hence the law as it prevailed on the date of arrest was complied with. On the basis of discussion made hereinabove it is evident that the remand application was provided to the petitioner s counsel and there is no objection raised during the time of remand. Further the law as it prevailed on the date of arrest was complied with by the Respondent. However it is also an admitted position that within 24 hours of the arrest the arrestee was supplied with the remand application which virtually contains all the grounds of arrest. Issue of culpability of the present petitioner - HELD THAT - It is manifestly apparent from the aforesaid fact that present petitioner has close linkup with the said company i.e. M/s Jagatbandhu Tea Estates Pvt. Ltd. However the present petitioner is the director of the said company or not is the matter of trial wherein both the parties are free to lead evidence in this regard - It needs to refer herein that in the case of Rohit Tandon v. Directorate of Enforcement 2017 (11) TMI 779 - SUPREME COURT the Hon ble Supreme Court observed that the provisions of Section 24 of the PMLA provide that unless the contrary is proved the authority or the Court shall presume that proceeds of crime are involved in money laundering and the burden to prove that the proceeds of crime are not involved lies on the petitioner. The ground of custody of 22 months of the petitioner has been taken. There is no dispute that the question of personal liberty is to be taken care of in order to follow the mandate of Article 21 of the Constitution of India but equally it is not in dispute that in a case of like nature in which the petitioner has been involved as per the allegation balance is to be maintained in order to have the message to the society that the thing which has been done by the petitioner as has been alleged cannot be considered merely on the ground of long custody rather the nature of allegation is required to be seen. Conclusion - i) The reason for giving explanation under Section 2(1)(u) is by way of clarification that proceeds of crime include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. ii) The conditions specified under Section 45 of PMLA are mandatory and need to be complied with even in respect of an application for bail made under Section 439 CrPC. The instant application stands dismissed.

Summary

The core legal questions considered in this judgment include:

1. Whether the arrest of the petitioner complied with the mandatory provisions of Section 19(1) of the Prevention of Money Laundering Act, 2002 (PMLA), specifically regarding communication of grounds of arrest in writing.

2. Whether there exists a sufficient "reason to believe" as required under Section 19(1) PMLA to justify the arrest of the petitioner for the alleged offence of money laundering.

3. Whether the twin conditions under Section 45 of the PMLA have been fulfilled to justify bail, i.e., whether there are reasonable grounds to believe that the accused is not guilty and is not likely to commit any offence while on bail.

4. The prima facie culpability of the petitioner in the offences alleged, including the connection between the petitioner and the companies involved in the laundering of proceeds of crime.

5. The impact of prolonged custody (approximately 22 months) on the bail application.

Issue-wise detailed analysis:

1. Legality of Arrest under Section 19(1) of PMLA

The relevant legal framework mandates that an authorized officer may arrest a person if there is "reason to believe" recorded in writing that the person has committed an offence under the Act, and the grounds of arrest must be communicated to the arrested person "as soon as may be." The Supreme Court in Vijay Madanlal Choudhary & Ors. v. Union of India clarified that informing the arrested person about the grounds of arrest satisfies the constitutional mandate under Article 22(1) of the Constitution of India. The Court also held that supplying a copy of the Enforcement Case Information Report (ECIR) is not mandatory, as it is an internal document, and non-supply does not violate constitutional rights.

Subsequent judgments, including Pankaj Bansal v. Union of India, mandated that henceforth the grounds of arrest must be furnished in writing to the arrested person. However, this requirement was prospective and not retrospective. The petitioner's arrest occurred prior to this ruling.

The petitioner contended that no written grounds of arrest were provided, rendering the arrest illegal. The respondent Enforcement Directorate (ED) produced a communication dated 07.06.2023, signed by the petitioner on each page, acknowledging that he had read and understood the grounds of arrest. The remand order passed by the Special Court also recorded no complaint from the petitioner regarding the grounds of arrest.

The Court referred to the judgment in Ram Kishor Arora v. Directorate of Enforcement, which held that informing the arrested person orally about the grounds of arrest and furnishing the written grounds within a reasonably requisite time (within 24 hours) satisfies the statutory and constitutional requirements.

Applying these principles, the Court found that the statutory mandate under Section 19(1) was complied with in the present case. The petitioner was informed of the grounds of arrest contemporaneously, acknowledged the same, and was produced before the Special Court with all relevant materials. The remand order was not challenged at the time, indicating no grievance regarding the arrest procedure.

The Court rejected the petitioner's argument that the arrest was illegal due to non-communication of grounds in writing at the time of arrest.

2. Sufficiency of Reason to Believe and Prima Facie Culpability

The PMLA defines "proceeds of crime" broadly, including property derived directly or indirectly from scheduled offences. Section 3 of the Act criminalizes involvement in any process connected with proceeds of crime, including concealment, possession, acquisition, or use.

The ED's prosecution complaint alleges that the petitioner conspired to acquire a defence property by creating a fictitious owner through forged documents, and the property was sold at a grossly undervalued consideration. The property was acquired in the name of M/s Jagatbandhu Tea Estate Pvt. Ltd., a company alleged to be a front for the petitioner and his family group.

The petitioner denied any connection with M/s Jagatbandhu Tea Estate Pvt. Ltd., asserting that he had no stake or beneficial ownership, and that the co-accused's statements attributing ownership to him were false.

The Court examined the statements of co-accused Dilip Kumar Ghosh recorded under Section 50 of PMLA. These statements revealed that:

• Jagatbandhu Tea Estate Pvt. Ltd. operated from office premises of the petitioner's group companies without rent.
• Employees of the petitioner's group were responsible for depositing large cash sums into the company's bank accounts.
• Significant funds were transferred from Jagatbandhu Tea Estate Pvt. Ltd. to M/s Rajesh Auto Merchandise Pvt. Ltd., a company controlled by the petitioner and his brothers.
• The email IDs and mobile numbers linked to the petitioner's companies were used in the KYC documents of Jagatbandhu Tea Estate Pvt. Ltd.

The Court observed that these facts prima facie indicate that Jagatbandhu Tea Estate Pvt. Ltd. was controlled and operated by the petitioner's group, and that the petitioner was a key decision-maker, even if not formally a director. The removal of Dilip Kumar Ghosh from directorships of the petitioner's companies immediately before the acquisition of the property by Jagatbandhu Tea Estate Pvt. Ltd. was viewed as a deliberate attempt to project him as a separate entity, facilitating the acquisition.

Reliance was placed on Section 24 of PMLA, which creates a statutory presumption that proceeds of crime are involved in money laundering unless the contrary is proved, and on the settled law that at the bail stage, only prima facie satisfaction is required. The Court noted that the burden to disprove involvement lies on the petitioner.

Accordingly, the Court concluded that the petitioner's prima facie culpability is established, and the twin conditions under Section 45(1) of PMLA for grant of bail are not fulfilled.

3. Application of Section 45 of PMLA and Bail Jurisprudence

Section 45(1) of PMLA mandates that no person accused of an offence under the Act shall be released on bail unless the Public Prosecutor is given an opportunity to oppose, and the court is satisfied that there are reasonable grounds to believe that the accused is not guilty and not likely to commit any offence while on bail. This provision is mandatory and overrides other laws, per Section 71 of PMLA.

The Supreme Court in Vijay Madanlal Choudhary & Ors. v. Union of India emphasized the stringent nature of bail under PMLA, recognizing money laundering as an aggravated crime requiring special procedural safeguards.

The Court also referred to guidelines laid down in Satender Kumar Antil v. CBI, categorizing offences and prescribing conditions for bail, placing money laundering offences under a category requiring stricter bail conditions.

Despite the petitioner's prolonged custody of approximately 22 months, the Court noted that delay or long incarceration alone cannot be grounds for bail in serious offences such as money laundering. The nature and gravity of the offence must be considered, and the Court relied on the recent Supreme Court judgment in Gurwinder Singh v. State of Punjab, which held that in grave offences, bail is the exception and jail the rule.

Given the prima facie case against the petitioner and the failure to satisfy the twin conditions under Section 45, the Court declined bail.

4. Treatment of Competing Arguments

The petitioner argued that the arrest was illegal due to non-communication of grounds in writing, that he had no connection with the accused company, and that there was no material to show involvement in forging documents or proceeds of crime. He also emphasized the long period of custody.

The Court addressed these points by:

• Finding compliance with Section 19(1) requirements based on the signed communication of grounds of arrest and remand orders.
• Rejecting the petitioner's denial of connection with Jagatbandhu Tea Estate Pvt. Ltd. based on co-accused statements and documentary evidence linking the petitioner's group to the company's operations and funds.
• Noting that at the bail stage, only a prima facie case is required, and the statutory presumption under Section 24 shifts burden to the petitioner.
• Holding that prolonged custody is not determinative in serious offences and must be balanced with the nature of allegations and societal interest in deterrence.

Conclusions:

The Court concluded that:

• The arrest of the petitioner was lawful and compliant with Section 19(1) of PMLA and constitutional mandates.
• There exists sufficient prima facie material to establish a reason to believe the petitioner's involvement in money laundering activities connected with the acquisition of the defence property through forged documents and front companies.
• The twin conditions under Section 45(1) of PMLA for grant of bail are not fulfilled, as there are reasonable grounds to believe the petitioner is guilty and may commit offences while on bail.
• Prolonged custody alone does not justify bail in serious offences like money laundering.
• The petitioner's bail application is dismissed.

Significant holdings and core principles established include:

"So long as the person has been informed about grounds of his arrest that is sufficient compliance of mandate of Article 22 (1) of the Constitution."

"The reason for giving explanation under Section 2(1)(u) is by way of clarification that proceeds of crime include property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence."

"The conditions specified under Section 45 of PMLA are mandatory and need to be complied with even in respect of an application for bail made under Section 439 CrPC."

"In serious offences such as money laundering, bail is the exception and jail the rule."

"The statutory presumption under Section 24 of PMLA shifts the burden of proof to the accused to establish that proceeds of crime are not involved."

"Non-supply of ECIR to the accused is not a violation of constitutional rights as it is an internal document of the Enforcement Directorate."

"The mere delay or prolonged incarceration cannot be the sole ground for granting bail in grave offences."