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PMLA Charges Persist Despite Approver Status in Predicate Offence: Bail Granted Due to Lack of Mens Rea and Procedural Compliance

Introduction

In a significant bail decision involving offences under the Prevention of Money Laundering Act, 2002 (‘PMLA’), the Hon’ble High Court of Delhi (‘HC’) in the case of Sanjay Kansal v. Assistant Director, Directorate of Enforcement[i], examined whether the applicant’s status as an approver in the predicate offence affects the proceedings under the PMLA. This ruling essentially addresses the grant of bail by the courts, based on grounds which inter-alia include the criteria under s. 45 of the PMLA, the role of the accused and the status of other similarly placed co-accused.

Facts

  • The applicant filed an application seeking regular bail under s. 439 of the Criminal Procedure Code, 1973 (‘CrPC’) read with s. 45 of the PMLA in Complaint Case No. 25/2022 arising from ECIR/DLZO-I/06/2020 (‘ECIR’).

  • The ECIR was based on FIR No. RC2202020E0005 registered on 26.02.2020 under s. 120B read with ss. 420, 468, 471 of the Indian Penal Code, 1860 (‘IPC’) and s. 13(2) read with s. 13(1)(d) of the Prevention of Corruption Act, 1988 (‘PCA’).

  • The FIR was filed by CBI following a complaint from the Deputy General Manager, State Bank of India (‘SBI’), alleging that M/s Shree Bankey Bihari Exports Ltd. (‘SBBEL’), promoted by Sh. Amar Chand Gupta, availed credit facilities of Rs. 625 crores but defaulted, resulting in the loan being classified as NPA on 27.02.2017.

  • A forensic audit declared the loan a fraud due to fudging balance sheets, fund diversion, and related party transactions, causing a wrongful loss of Rs. 604.81 crores. SBBEL and its directors were accused of bogus transactions, diverting funds meant for reducing outstanding loans and misappropriating working capital funds.

  • The Enforcement Directorate (‘ED’) filed a complaint against 47 persons, including the applicant, for money laundering. The applicant, who was the nephew of accused Amar Chand Gupta, was arrested on 27.08.2022 and has been in judicial custody since then. He was accused of opening paper firms for fraudulent transactions with SBBEL and laundering around Rs. 50 crores in furtherance of a conspiracy with the co-accused persons.

Held

  • The HC granted the bail application filed by the applicant on the grounds that the applicant met the criteria under s. 45 of the PMLA, the fact that he had been in judicial custody for approximately one year and nine months and had been granted bail in the predicate offence.

  • The HC after examining whether the applicant becoming an approver in the predicate offence affects the proceedings under the PMLA, rejected the applicant’s argument that having been granted a pardon in the predicate offence, he stands discharged from that offence and thus should be absolved from charges under the PMLA.

  • The HC referred to the Supreme Court’s decision in Pavana Dibbur v. Directorate of Enforcement[ii] which clarified that an offence under s. 3 of the PMLA can be committed by a person even if they are not named as an accused in the scheduled offence, provided the proceeds of crime exist in relation to the scheduled offence.

  • The HC agreed with the Allahabad High Court’s decision in Mohan Lal Rathi v. Union of India[iii] stating that a pardon under s. 306 of the CrPC does not equate to an acquittal in the context of the PMLA unless a full and true disclosure of the offence under the PMLA is made and therefore a pardon does not absolve the applicant entirely from proceedings under the PMLA.

  • However, the HC noted that for the purpose of granting bail under the PMLA, the case of the applicant had to be dealt with while keeping in mind the provisions of s. 45 of PMLA and on the basis of the material placed by the respondent qua the applicant.

  • The HC noted that the applicant’s statements under s. 50 of the PMLA indicated that he acted under the instructions of key figures in the company, earning a salary and commission for his role and that he was not key managerial personnel, nor responsible for the day-to-day affairs of SBBEL. It further noted that no evidence showed that the applicant had knowledge that the funds were proceeds of crime.

  • The HC while relying upon the decision of its co-ordinate bench in Sanjay Jain v. ED[iv] and Vijay Agrawal Through Parokar v. ED[v] also observed that similarly placed accused persons had not been arrested in the present case which highlighted the inconsistency in the applicant’s continued detention. Therefore, given the applicant’s non-key managerial role, lack of property attachment, and his cooperation with the investigation, the HC granted bail to the applicant subject to certain conditions.

Our Analysis

The HC thoroughly analyzed various judicial precedents and the applicant’s role, emphasizing the distinction between being an approver in the predicate offence and absolution in PMLA cases. It reinforced that pardon in one case does not automatically result in acquittal in another unless full disclosure is made.

This ruling underscore the judiciary’s approach towards balancing the presumption of innocence with the need for a thorough investigation of financial crimes. It brought out the importance of mens rea in determining culpability under the PMLA, considering the applicant’s cooperation and lack of direct evidence of his knowledge of the fraud. The decision also highlights the court’s discretion in granting bail based on individual case merits, particularly when the accused’s involvement is indirect or minimal.






End Notes

[i] BAIL APPLN. 1268/2023

[ii] 2023 SCC OnLine SC 1586

[iii] 2023: AHC-LKO:59826

[iv] [2024] 160 taxmann.com 367 (Delhi)

[v] [2023] 153 taxmann.com 509 (Delhi)





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

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