Introduction
The Delhi High Court, in the case of Hari Om Rai v. Directorate of Enforcement[i], addressed a bail application under the Prevention of Money Laundering Act, 2002 (‘PMLA’) involving allegations of money laundering, violations of foreign direct investment (‘FDI’) regulations, and evidence tampering related to the operations of Vivo group companies in India. The applicant, the Managing Director of Lava International and a competitor of Vivo was accused of aiding Vivo’s establishment in India while circumventing regulatory norms.
While the prosecution emphasized serious allegations, including the facilitation of fraudulent activities and evidence tampering, the High Court assessed whether the stringent twin conditions for bail under s. 45 of the PMLA were satisfied. Balancing these conditions with the applicant’s constitutional rights and the delays in trial proceedings, the Court underscored the critical need to safeguard individual liberty against prolonged detention without substantive evidence of guilt.
Facts
The applicant filed a bail application in relation to an enforcement case information report (‘ECIR’) registered in 2022. The ECIR stemmed from an FIR filed in 2021 under ss. 417/120B/420 of the Indian Penal Code, 1860 (IPC), which now corresponds to the Bharatiya Nyaya Sanhita, 2023 (BNS), in Delhi, later supplemented by another FIR and a prosecution complaint filed in 2023, with further updates in 2024.
The prosecution alleged that Vivo Mobile Communication Co. Ltd., China (‘Vivo China’) conspired to establish Vivo group companies in India, concealing their true ownership. Vivo Mobile India Private Limited (‘Vivo India’) allegedly misrepresented itself as a subsidiary of Multi Accord Limited, a Hong Kong-based company, though Vivo China actually controlled it.
Vivo India allegedly transferred Rs. 70,837 crores to overseas accounts, generating proceeds of crime worth approximately Rs. 2,000 crores, routed to entities controlled by Vivo China. Further allegations included using forged driving licences to open bank accounts for shell companies and irregularities in visa procurement.
As Managing Director of Lava, the applicant was accused of helping Vivo China establish operations in India by providing logistical support, circumventing FDI norms, and transferring Rs. 3.17 crores to Labquest Engineering Pvt. Ltd. (‘Labquest’). Despite participating in the investigation in 2022 and 2023, the applicant was arrested in October 2023, although the ECIR contained no direct allegations against him.
In his bail application, the applicant contended that he had been falsely implicated, with no material evidence linking him to the alleged offences or proceeds of crime, and that the invitation letters issued to Chinese nationals in 2013-2014 were for a potential joint venture with Vivo, predating the alleged offence period. It was argued that the Rs. 3.17 crores transferred to Labquest was a loan given in 2014, fully repaid with interest by 2015, and any adverse inference was speculative.
The applicant also claimed that a 2014 email cited against him was speculative and pertained to suggestions from Vivo, with the funds transferred prior to the email. Any FDI allegations, he argued, should fall under the Foreign Exchange Management Act, 1999 (FEMA), not the PMLA. The applicant also contended that the trial faced significant delays involving 53 accused, 542 witnesses, and 83,500 documents, with charges yet to be framed, and that the co-accused had been granted bail, and no evidence suggested that he influenced witnesses or tampered with evidence.
The respondent opposed the bail application, alleging that the applicant facilitated money laundering, evidence tampering, and the use of forged documents to establish companies. It was alleged that the applicant bypassed FDI norms, transferring substantial sums to establish offices and residences for Chinese nationals. Forensic findings indicated tampering with emails, including searches on how to delete emails and the absence of pre-2015 emails. Misuse of interim bail led to further allegations suggesting continued misconduct if released on bail. Additionally, the respondent argued that the applicant failed to satisfy the twin conditions under s. 45 of the PMLA requires proving innocence and demonstrating that further offences are unlikely.
Held
The High Court granted bail, noting that the applicant satisfied the twin conditions under s. 45 of the PMLA. There was insufficient material to establish his involvement in the alleged offences, and no evidence indicated that he committed any offence while on interim bail.
The High Court observed that while the applicant extended invitations to Chinese nationals, the prosecution could not establish that these were linked to the scheduled offence. It was held that visa violations, if any, involved Chinese nationals who were unconnected to the applicant and that the claim that Rs. 3.17 crores transferred to Labquest was a loan repaid by March 2015 was corroborated, with no evidence showing payments to overseas entities controlled by the applicant.
Emphasizing the constitutional right to life and liberty under a. 21 of the Constitution of India ('Constitution'), the Court noted significant delays in the trial - charges had yet to be framed since the investigation began in 2022, with the applicant incarcerated since October 2023, especially when such delay was not attributable to him. Thus, bail was granted, noting the trial delays, the granting of bail to co-accused, and the limited maximum sentence for the offence of money laundering.
Our Analysis
This decision is significant as it highlights the delicate balance between an individual's constitutional rights and the stringent bail conditions under the PMLA. The High Court’s emphasis on a. 21 of the Constitution underscores that prolonged incarceration without trial cannot compromise the right to life and liberty, especially when insufficient evidence directly links the accused to the alleged offences. In this case, the applicant was accused of facilitating money laundering and FDI violations through alleged involvement with Vivo group companies. However, the High Court found no material proof of his direct involvement in generating proceeds of crime or tampering with evidence after being granted interim bail.
The decision also reflects the slow pace of trials in complex cases involving numerous accused, voluminous documentation, and lengthy investigations. Charges were yet to be framed even two years after the investigation commenced, leading the High Court to recognize the injustice of indefinite detention, particularly in the absence of clear evidence or delays attributable to the applicant. Additionally, the High Court considered the granting of bail to the co-accused and the repayment of disputed loans by 2015, further weakening the case against the applicant. These factors, coupled with the overarching principle that bail is the rule and jail is the exception, led to the granting of bail.
However, this decision raises an intriguing question: to what extent can or should courts delve into the allegations at the bail stage, particularly when the law on this issue is well settled – that courts generally refrain from examining the merits of the matter while deciding bail applications? Under s. 45 of the PMLA, courts are required to assess whether the accused is ‘not guilty’ of the alleged offence and unlikely to commit further offences if released. This necessitates an examination of some details of the allegations. Yet, such an inquiry appears contrary to established bail jurisprudence, discouraging courts from making determinations akin to a trial. This inherent contradiction confronts the judiciary with a critical question: what degree of scrutiny is appropriate when assessing bail applications under the PMLA without veering into the merits of the case prematurely?
End Note
[i] 2024 SCC OnLine Del 8095 dated 20.11.2024.
Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.