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[Bombay HC] Accused persons can be denied bail, even if they are not directly involved in the predicate offence but can still be prosecuted under PMLA

Introduction

In the matter of Sadanand Gangaram Kadam v. Directorate of Enforcement[i], the Bombay High Court (‘BHC’) denied bail to the accused person noting that although the accused person is not involved in the predicate offence, the accused can still be prosecuted under Prevention of Money-Laundering Act, 2002 (‘PMLA’). This judgment highlights the necessity for the accused person to actively demonstrate the presence of factors that justify the grant of bail in cases pertaining to money laundering.

Brief Facts

  • An Enforcement Case Information Report (‘ECIR’) was registered by the Directorate of Enforcement (‘ED’) against Sadanand Gangaram Kadam (‘Applicant’) and others, based on which a special case was filed in the Special Court under PMLA. This case was filed for the alleged offence of money laundering under s. 3 of the PMLA, read with the applicable punishment outlined in s. 4 of the PMLA. The Applicant was not arrayed as accused in the chargesheet but was only a witness in the special case.

  • In 2011, Mr. Vibhas Sathe purchased land in Dapoli. And later in 2017, he applied for its conversion to non-agricultural (‘NA’) use, which was approved by the Sub-Divisional Officer. The Applicant's involvement was in facilitating and organizing this transaction.

  • In 2017, Mr. Vibhas Sathe allegedly sold the land to Mr. Anil Parab, formalized through a deed in 2019, purportedly to conceal Mr. Parab's identity. Later, in 2020, this land was sold to the Applicant vide a registered sale deed.

  • Later in 2022, the Ministry of Environment and Forests (‘MoEF’) filed a private complaint before JMFC Dapoli under ss. 5,7 read with s. 15 of the Environment Protection Act, 1986 (‘EP Act’). The Respondent treated this complaint as a predicate offence and registered the ECIR.

  • Based on ECIR, ED officers recorded the Applicant’s statement which led to further investigations and subsequent legal proceedings in November 2022.

  • Another FIR was registered by the Block Development Officer (‘BDO’) against Mr. Anil Parab for allegedly applying for property tax assessment and an electricity connection for an incomplete structure, constituting an offence of cheating, in which the Applicant was only a witness and not arrayed as an accused. The Applicant's statements were recorded by the ED in December 2022 and later retracted in February 2023, resulting in his arrest on 10.03.2023.

  • The Dapoli Police Station broadened the subsequent FIR and arrested the Circle Officer and Sub-Divisional Officer alleging the commission of the offences under ss. 467, 471 and 478 of the Indian Penal Code, 1860 (‘IPC’) along with the Prevention of Corruption Act, 1988 (‘PC Act’) for allegedly granting permissions based on fraudulent reports. The complaint filed related to the ECIR, the trial of which was ongoing at the Special PMLA Court in Mumbai.

Held

  • The BHC denied the Applicant's bail application by applying the twin conditions under s. 45 of PMLA and found no merit in the Applicant's counsel's submissions regarding bail under the said provision. It held that this section stipulates twin conditions for bail i.e., the Public Prosecutor must have the opportunity to oppose bail, and that the Court must be convinced that there are reasonable grounds to believe the Applicant is not guilty and will not commit any offence while on bail. Failing these conditions, bail cannot be granted.

  • Further, BHC observed that eligibility under the PMLA requires a formal accusation of an offence under s. 3 of the PMLA, specifically for money laundering.

  • The BHC after examining the investigation details, recorded statements, and arrests made under the PMLA, determined that an accused who becomes involved after the commission of the scheduled offence by assisting in concealing or using the proceeds of crime need not directly be arrayed as an accused in the scheduled offences. However, such accused persons can still be prosecuted under the PMLA, provided the related scheduled offence exists.

  • Furthermore, the BHC observed that while the ED possesses investigative and inquiry powers under the PMLA, it is not required to go into the domain of the agency investigating the predicate offence.

  • The BHC further relied on a decision made by the Apex Court in the matter of Tarun Kumar Vs. Assistant Director Directorate of Enforcement[ii]. In this case, the Apex Court asserted the necessity for the Court to be convinced of reasonable grounds to believe that the accused is not guilty and unlikely to commit any offense while on bail.

  • After reviewing the accusations against the Applicant in FIR No. 177 of 2022, which indicates fraudulent activities and document falsification, the BHC observed that these are potential indicators of money laundering under the PMLA and the role of the Petitioner in aiding and assisting the offence of money laundering.

  • The BHC concluded that prima facie, the PMLA complaint indicates that the Applicant derived and obtained property from criminal activity linked to an existing scheduled offence. Therefore, the BHC observed that the Applicant appears to have directly or indirectly attempted to partake, knowingly assisted, or been involved in activities connected with the proceeds of crime, projecting the property as untainted.

  • Accordingly, considering the seriousness of the accusations, the BHC denied the Applicant's bail application by applying the twin conditions under s. 45 of PMLA. The materials presented did not convince the BHC of reasonable grounds to believe the Applicant is not guilty of the alleged offence.

Analysis

The PMLA has been central to legal debates, especially regarding its stringent bail conditions. Initially, the twin conditions for bail under s. 45 of the PMLA were limited to predicate offences carrying imprisonment of three years or more. However, following a constitutional challenge and subsequent amendment, these conditions were expanded to encompass all PMLA offences. The Apex Court, in Nikesh Tarachand Shah v. Union of India[iii], declared these conditions to be unconstitutional, infringing fundamental rights. However, the 2018 Amendment expanded the twin conditions to encompass all PMLA offences, leading to differing interpretations among various High Courts regarding this amendment’s effect.

In Vijay Madanlal Choudhary v. Union of India[iv], the Apex Court upheld the twin conditions as laid down in s. 45(1) of the PMLA to be congruent with the PMLA objectives to combat money laundering. This development implies a heightened challenge for applicants under the PMLA in securing bail, necessitating substantial proof of innocence and non-involvement in the alleged offences during the ED’s investigation.

The BHC observed that any activity related to money laundering, such as concealment, possession, acquisition, use of proceeds of crime, or projecting untainted proceeds of crime, can supply the basis to invoke the PMLA. Considering the observation made in the case of Vijay Madanlal Choudhary (supra), where the Apex Court categorically rejected that mere non-naming of an individual as an accused cannot entitle them to bail. This ruling upholds the constitutionality of the provisions of the PMLA and emphasizes the need for effective mechanisms to deal with money laundering offenses. In summary, the BHC decision underscores the importance of addressing money laundering through robust legal measures.




End Notes

[i] [2023] 157 taxmann.com 209 (Bombay)

[ii] 2023 SCC OnLine SC 1486

[iii] 2017 SCC OnLine SC 1355

[iv] 2022 SCC Online SC 929




Authored by Aishwarya Pawar, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

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