2022 (1) TMI 1252 - HC - Money Laundering

Directors' bail petitions denied under Prevention of Money Laundering Act due to risk of evidence tampering or fleeing

N. Umashankar @ N.M. Umashankar, V. Janarthanan, N. Arunkumar, Saravanakumar Versus The Assistant Director, Directorate of Enforcement, Government of India, Chennai Zone-2, Chennai

The court dismissed the bail petitions of the directors of a company accused of defrauding investors under the Prevention of Money Laundering Act. Despite ... Cancellation of anticipatory bail granted - investigation done by the respondent has been completed or not - Applicability of provisions of section 45 of the PMLA - bail petitions filed by the petitioners are liable to be rejected solely on the ground that the amended provisions of Section 45 of the PMLA bars filing of bail petitions - HELD THAT:- It could be seen that the petitioners are the Directors of the Company, viz., M/s. Disc Assets Promoter India Ltd, who are the persons responsible for the affairs of the company and they had collected money from the public under various investment schemes from the year 2006 with a promise to pay attractive returns in the form of loan or cash, but, they had failed to pay the investors of the promised returns and defrauded the investors/public by the said company and caused pecuniary loss to the tune of Rs.1137 crores to the investors. With regard to the investment mobilized from the public, the SEBI, by its interim order dated 20.08.2015 and final order dated 30.03.2016, directed the Company and its Directors to wind up the investment schemes and refund the money due to the investors. However, the Directors had failed to refund the money to the investors. Based on the reference from the SEBI and the complaints received from the investors/public, the Economic Offences Wing of the Tamil Nadu Police registered a case in Crime No.6 of 2016, dated 02.06.2016, for the offences under Sections 406, 420, 120B of IPC read with Section 5 of the TNPID Act - So far as application of Section 45 is concerned, the said provision was amended on 19.04.2018. No doubt, the legislature has the power to cure the underlying defect pointed out by a Court, while striking down a provision of law and pass a suitable amendment. When such a law is passed, the legislature basically corrects the errors which have been pointed out in a judicial pronouncement. Resultantly, it amends the law, by removing the mistakes committed in the earlier legislation, the effect of which is to remove the basis and foundation of the judgment. Therefore, merely because the entire section is not re-enacted would be of no consequence, since the provision even after being declared unconstitutional, does not get repealed or wiped out from the statute book and it only becomes unenforceable. Therefore, once the Parliament steps in and cures the defect pointed out by a Constitutional Court, the defect appears to be cured and the presumption of constitutionality is to apply to such provision. Therefore, there is a presumption in favour of constitutionality since the amended section 45(1) of the PMLA has not been struck down. This court does not believe that the petitioner are not guilty of the alleged offences and in such circumstances, this court cannot give a finding that the petitioners are not likely to commit offence while on bail. It is also alleged that if the petitioners are enlarged on bail, there is every likelihood that the petitioners may flee the jurisdiction of this Court to avoid the process of law - Petition dismissed. Issues Involved:1. Grant of bail to the petitioners under the Prevention of Money Laundering Act (PMLA).2. Applicability and constitutionality of Section 45 of the PMLA.3. Petitioners' cooperation with the investigation.4. Legislative amendment to Section 45 of the PMLA and its impact on bail conditions.Detailed Analysis:1. Grant of Bail to the Petitioners under the PMLA:The petitioners, who are directors of a company accused of defrauding investors, sought bail after being arrested under Section 3 of the PMLA and punishable under Section 4. The petitioners argued that since the investigation was complete and their passports were surrendered, the risk of tampering with evidence or fleeing was minimal. They also cited their law-abiding nature and willingness to cooperate with the investigation.2. Applicability and Constitutionality of Section 45 of the PMLA:The petitioners argued that Section 45 of the PMLA, which imposes stringent conditions for bail, was declared unconstitutional by the Supreme Court in the case of *Nikesh Tarachand Shah v. Union of India and another* (2018). They contended that the subsequent amendment to Section 45 was invalid because it attempted to revive a provision already struck down. They supported their argument with multiple judgments, including *Prakash Gurbaxani v. The Directorate Of Enforcement* and *Amarendra Dhari Singh vs Directorate Of Enforcement*.3. Petitioners' Cooperation with the Investigation:The respondent, represented by the Special Public Prosecutor, opposed the bail petitions, arguing that the petitioners had not cooperated with the investigation. The prosecutor highlighted that the petitioners had failed to refund the money to investors as directed by SEBI and had indirectly started new companies using other names, indicating a likelihood of non-cooperation and potential flight risk.4. Legislative Amendment to Section 45 of the PMLA and its Impact on Bail Conditions:The court noted that the legislative amendment to Section 45, which substituted the words 'punishable for a term of imprisonment of more than three years under Part A of the Schedule' with 'under this Act,' aimed to cure the defects pointed out by the Supreme Court. The amendment's constitutionality was pending before the Supreme Court without any interim stay. The court held that the amended provision was binding and that the stringent conditions for bail under Section 45(1) remained applicable.Conclusion:The court, after considering the submissions and the materials on record, concluded that the petitioners had committed serious offences involving a significant amount of public money and had not cooperated with the investigation. Given the legislative amendment to Section 45 and the lack of a stay from the Supreme Court, the court found the stringent bail conditions applicable. The court dismissed the bail petitions, emphasizing the petitioners' past conduct and the likelihood of them fleeing the jurisdiction.Result:The Criminal Original Petitions were dismissed, and the petitioners were denied bail.