2022 (6) TMI 585 - HC - Money Laundering

Court Denies Bail for Money Laundering Offences; Petitioner Fails to Meet Section 45 Conditions

Shri Avasarala Venkateswara Rao Versus Directorate of Enforcement

The court dismissed the petitioner's bail application under Sections 437 and 439 Cr.P.C. for offences under Sections 120-B, 420, 468, and 471 IPC and the ... Seeking enlargement on Bail - Money Laundering - siphoning of funds - diversion of money which was drawn from the consortium of banks, for unintended usage - two conditions prescribed under Section 45 of the Act have been fulfilled or not - HELD THAT:- As seen from the investigation done so far by the respondent/Directorate, the consortium of banks has advanced money to SIPL for which the petitioner is the Managing Director and it is alleged that the funds to the tune of Rs.395 crores advanced by the consortium of banks were diverted wrongfully by the petitioner. The report of DDI LLP, which was got done by lenders, also shows that SIPL has shown false transactions and siphoned the funds and issued letter of credits in the name of the companies and the persons belonging to the petitioner, who, in turn, have again diverted the funds in favour of the petitioner. The petitioner and his family members stated to have purchased some assets in the name of benamis and with malafide intention has approached BIFR for declaring the company as sick company - Considering the material collected so far by the respondent/Directorate, it cannot be said that there is no prima facie material to show that the funds borrowed by the petitioner for SIPL has been siphoned for wrongful gain. This Court is not inclined to record that there are no grounds to believe that the petitioner is not found guilty of the offence alleged against him. In fact, it is the trial Court, which, after full-fledged trial, only will undertake to record such kind of observation. Since the petitioner has failed to fulfill the two conditions prescribed under Section 45 of the Act, this Court is not inclined to grant the relief sought for by him - Criminal petition dismissed. Issues Involved:1. Whether the petitioner can be enlarged on bail under Sections 437 and 439 Cr.P.C. for offences under Sections 120-B read with Sections 420, 468, and 471 IPC and the Prevention of Money Laundering Act, 2002.2. Applicability of Section 45 of the Prevention of Money Laundering Act, 2002, post-amendment.3. Constitutionality and implications of the conditions prescribed under Section 45 of the Act.Issue-wise Detailed Analysis:1. Bail Application under Sections 437 and 439 Cr.P.C.:The petitioner, Managing Director of M/s. Servomax India Private Limited (SIPL), sought bail after being remanded to judicial custody for alleged offences under Sections 120-B read with Sections 420, 468, and 471 IPC. The case stemmed from a complaint by the Assistant General Manager, State Bank of India, alleging misutilization of funds borrowed from a consortium of banks. Investigations revealed that the petitioner, along with others, diverted funds amounting to Rs. 298.97 crores to shell companies and individuals. The Enforcement Directorate found a prima facie case against the petitioner under the Prevention of Money Laundering Act, 2002, leading to his arrest and remand.2. Applicability of Section 45 of the Prevention of Money Laundering Act, 2002:Section 45 of the Act stipulates two conditions for granting bail:(i) The Public Prosecutor must be given an opportunity to oppose the bail application.(ii) The court must be satisfied that there are reasonable grounds to believe the accused is not guilty and will not commit any offence while on bail. The court noted that the Public Prosecutor had opposed the bail and presented a detailed counter. The court also highlighted that the petitioner failed to demonstrate reasonable grounds for believing he was not guilty, thus failing to meet the conditions under Section 45.3. Constitutionality and Implications of Section 45:The petitioner argued that Section 45's conditions were draconian and cited the Supreme Court's ruling in Nikesh Tarachand Shah vs. Union of India, which declared Section 45 unconstitutional for violating Articles 14 and 21 of the Constitution. However, the Act was subsequently amended in 2018, replacing the phrase 'no person accused of an offence punishable for a term of imprisonment of more than three years under Part-A of the Schedule' with 'no person accused of an offence under this Act.' The court acknowledged this amendment and its applicability, given the Enforcement Directorate registered the FIR post-amendment.The petitioner contended that the amendment should not apply since the original FIR by CBI was registered before the amendment. However, the court referenced the Madras High Court's judgment in N. Umashankar @ N.M. Umashankar, which upheld the constitutionality of the amended Section 45. The Supreme Court's refusal to interfere with this judgment reinforced its applicability.Conclusion:Considering the material collected and the legal precedents, the court concluded that the petitioner did not meet the conditions under Section 45 of the Act. The court emphasized that only a trial court, after a full trial, could determine the petitioner's guilt or innocence. Consequently, the petition for bail was dismissed, and the court declined to grant the relief sought by the petitioner. Pending miscellaneous applications were also closed.