Delhi High Court: Fund Collection Alone Does Not Constitute Proceeds of Crime, Grants Bail

Introduction

In Parvez Ahmed v. Directorate of Enforcement[i], the Delhi High Court discussed the interpretation and application of provisions for bail under the Prevention of Money Laundering Act, 2002 (‘PMLA’). Parvez Ahmed, Abdul Muqeet, and Mohd Ilyas (‘Petitioners’) were accused of money laundering under the PMLA in connection with fundraising activities for the Popular Front of India (‘PFI’), a banned organisation. The Enforcement Directorate (‘ED’) had alleged that the petitioners were collecting and utilizing funds for illegal and terrorist activities. The Petitioners sought to obtain bail by challenging the long-term detention and accusations against them. The Court relied on certain fundamental principles, which included the interpretation of ‘proceeds of crime’ to decide this case.

Facts

• The ED initiated proceedings under ECIR/STF/17/2022 on the basis of the first information report (FIR) lodged by the National Investigation Agency (NIA), alleging offences under the Unlawful Activities (Prevention) Act, 1967 (UAPA), and the Indian Penal Code 1860 (IPC).

• Role of the Accused:

  • Parvez Ahmed: Popular Front of India, Delhi (‘PFI’) president accused of supervising fundraising and issuing sham donation receipts.

  • Mohd Ilyas: General Secretary of PFI; handles fundraising in Trans-Yamuna areas and collects funds.

  • Abdul Muqeet: Office Secretary of PFI; accused of distributing fake donation receipts and collecting money in his locality.

• The Petitioners were arrested on 22.09.2022 and accused of collecting funds purportedly used for scheduled offences.

• The ED filed a complaint before the trial court on 19.11.2022, highlighting the specific roles of the Petitioners in fund collection and alleged laundering of proceeds of crime.

• The ED had alleged that over Rs. 60 crores had been deposited in PFI accounts since 2009, with Rs. 32 crores in cash. The funds were allegedly raised through unlawful activities, concealed using fake donation receipts, and used for terrorism-related purposes, including anti-CAA protests and Delhi riots.

• The Petitioners contended that there was no evidence of a predicate scheduled offence, making the funds inadmissible as ‘proceeds of crime’.

• The Petitioners further claimed they did not have dominion or control over the funds, as these were deposited into PFI accounts or handed over to the organisation’s accountant.

• The Petitioners argued for bail based on prolonged incarceration over two years and with significant trial delays.

Held

The Delhi High Court granted bail to the Petitioners while making the following observations:

• The Court observed that the proceeds of crime must originate from a criminal activity linked to a scheduled offence under PMLA. In the present case, the funds collected for illegal activities did not come within the category of ‘proceeds of crime’ under the PMLA as they were not directly traced to a scheduled offence, thus failing the test of proceeds of crime under s. 3 of the PMLA.

• It was further observed that the ED’s contention that funds were meant for some future offences did not meet the required statutory test. Further, the Court noted that the petitioners were not shown to have exercised dominion or control over the alleged proceeds of crime, as the funds were deposited into PFI accounts or handed to their accountants.

• The Court referred to the decision of Manish Sisodia v. Directorate of Enforcement[ii], emphasising that the generation of proceeds of crime alone does not establish possession or use by the accused.

• The Court emphasised the constitutional guarantee of personal liberty under a. 21 of the Constitution of India (‘Constitution’), reiterating the principle that ‘bail is the rule, jail is the exception.’

• Citing the decision in the case Union of India v. K.A. Najeeb[iii]* and V. Senthil Balaji v. Enforcement Directorate*[iv], the Court held that when detention is long and unjustified, personal liberty under a. 21 prevails.

• The Court recognised that despite the rigours of s. 45 of the PMLA, the petitioners met the conditions for bail as the prosecution failed to establish prima facie guilt.

Our Analysis

The decision of the Delhi High Court reinforces the principle that stringent provisions under special statutes like the PMLA must align with fundamental rights. This decision sets a significant precedent for interpreting the definition of ‘proceeds of crime’ and granting bail under the PMLA. In this case, the Court’s interpretation of proceeds of crime reinforces that the foundation of a money laundering charge lies in demonstrable evidence of proceeds of crime originating from a scheduled offence. By holding that fund collection preceding an offence cannot constitute proceeds of crime, this judgement delineates the boundaries of PMLA’s application.

The decision also emphasises the role of constitutional courts in safeguarding individual rights under a. 21 of the Constitution against the potential misuse of stringent bail provisions. It acknowledges that prolonged incarceration without trial amounts to pre-conviction punishment, undermining the presumption of innocence. Therefore, this decision ensures that PMLA does not become a tool for indefinite detention, striking a balance between legislative intent and individual freedoms.

In an era of increasing economic offences, the judgment serves as a reminder to uphold the rule of law while ensuring justice is not denied through procedural delays.

End Notes

[i] 2024 SCC OnLine Del 8528.

[ii] 2024 SCC OnLine SC 1920.

[iii] (2021) 3 SCC 713.

[iv] 2024 SCC OnLine SC 2626.

Authored by Maarij Ahmad, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.