2023 (4) TMI 874 - SC - Money Laundering

Court grants bail to appellant in criminal case involving IPC, SEBI violations & PMLA; cites lack of flight risk.

The court allowed the appeal in a criminal case involving alleged offenses under various sections of the IPC, SEBI violations, and money laundering under ... Seeking grant of bail - Money Laundering - proceeds of crime - predicate offence - misappropriation of amount by forging the signatures, with the help of the pledged documents - fraudulent GDR issue - Sections 44 and 45 of PMLA - HELD THAT:- There is no controversy about the following facts: (i) that the registration of the ECIR and the lodging of the prosecution complaint in the year 2022 were a sequel to the registration of the FIR for the predicate offence, way back in the year 2013, at the instance of one M. Srinivas Reddy, Managing Director, Farmax and also a sequel to the order passed by SEBI in the year 2020; (ii) that no final report has been filed in the FIR for the predicate offence, for the past nine years; (iii) that even M. Srinivas Reddy, the de-facto complainant in the FIR for the predicate offence, was sought to be arrested as an accused in connection with the ECIR, but the application of the Enforcement Directorate for remand was rejected; (iv) that the appellant is a Chartered Accountant by profession and has been in jail from 26.09.2022; and (v) that the relevant portion of paragraph 8 of the prosecution complaint filed by the Enforcement Directorate, which we have extracted in the preceding paragraph, gives room for a valid argument that the second condition found in Clause (ii) of sub-section (1) of Section 45 of PMLA is satisfied qua the appellant. Therefore, the continued incarceration of the appellant may not be justified. However, the apprehension of the Enforcement Directorate that the appellant is a flight-risk and may go out of the country if released on bail, has to be taken care of by imposing appropriate conditions. The appellant is directed to be enlarged on bail, subject to such terms and conditions as may be imposed by the Metropolitan Sessions Judge-cum-Special Court - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether bail under Section 45 of the Prevention of Money-Laundering Act, 2002 (PMLA) should be granted to an accused alleged to be the central figure in a money-laundering scheme when the predicate FIR registered nine years earlier has not resulted in a final report. 2. Whether the twin conditions in Section 45(1)(ii) PMLA - (a) prima facie involvement in money-laundering and (b) possession of proceeds of crime - are established so as to deny bail. 3. Whether prolonged pre-charge incarceration in the predicate offence affects the propriety of continued custody or denial of bail under PMLA. 4. Whether the Special Court can and should impose conditions (including surrender of passport and regular appearance) to mitigate flight risk when granting bail under PMLA. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Grant of bail under Section 45 PMLA in light of delay in predicate FIR proceedings Legal framework: Section 45 PMLA prescribes conditions for grant of bail in money-laundering cases; the statutory scheme requires consideration of whether the accused is prima facie guilty of the scheduled offence and in possession of proceeds of crime, among other statutory criteria. Precedent Treatment: The judgment does not rely upon or distinguish any prior authority; analysis proceeds from the statutory text and pleaded facts. Interpretation and reasoning: The Court notes that the ECIR and prosecution complaint under PMLA arise from a predicate FIR registered in 2013 but that no final report has been filed in that FIR even after nine years. The absence of a final report in the predicate offence is treated as a material circumstance militating against continued incarceration: prolonged delay in the predicate proceedings reduces the justification for continued custody on the PMLA complaint pending finalisation of the predicate case. While the prosecution complaint alleges centrality of the accused in the scheme, the Court finds that the long absence of a charge-sheet in the predicate FIR weakens the case for denying bail outright. Ratio vs. Obiter: Ratio - delay in filing the final report in the predicate FIR for a prolonged period (nine years) is a relevant factor supporting grant of bail under PMLA; Obiter - none identified. Conclusion: The Court concludes that continued incarceration may not be justified solely on the basis of the PMLA prosecution complaint where the predicate FIR has not resulted in a final report for an extended period, and this fact supports grant of bail subject to conditions. Issue 2 - Application of the twin conditions in Section 45(1)(ii) PMLA (prima facie involvement and possession of proceeds) Legal framework: Section 45(1)(ii) PMLA requires the Court to deny bail if satisfied that the accused is prima facie guilty of an offence punishable under PMLA and is prima facie found to be in possession of proceeds of crime. Precedent Treatment: The Court does not cite or apply specific precedents; the prosecution complaint's averments form the basis for assessing whether the twin conditions are satisfied. Interpretation and reasoning: The prosecution complaint attributes a detailed role to the accused - coordinating the offering, preparing documents, introducing parties, insisting on particular banking arrangements, and allegedly facilitating diversion of GDR proceeds. The Court extracts and examines the specific pleaded role and accepts that the prosecution complaint gives room to argue that the second condition in Section 45(1)(ii) is satisfied 'qua' the accused (i.e., there is some material to suggest involvement). However, the defence points to lack of material showing the accused's possession of proceeds and to the accused's professional role as a Chartered Accountant limited to providing services. Balancing these aspects, the Court finds that although the prosecution complaint permits an argument in favour of the twin conditions, other factors (notably the prolonged absence of a final report and lack of direct material of possession) diminish the case for denying bail outright. Ratio vs. Obiter: Ratio - the presence of allegations in the prosecution complaint that could satisfy the twin conditions does not automatically preclude bail when countervailing factors (lengthy delay in predicate proceedings; lack of direct material of possession) exist; Obiter - detailed evaluation of prima facie satisfaction of Section 45(1)(ii) may require fuller record at trial. Conclusion: The Court does not hold that the twin conditions are conclusively satisfied so as to bar bail; instead, it recognizes that the prosecution complaint furnishes material to support the twin-condition argument but finds that the totality of circumstances warrants conditional bail. Issue 3 - Effect of professional services and absence of direct possession of proceeds on bail determination Legal framework: Criminal liability under PMLA depends on involvement in money-laundering and handling of proceeds, whereas professional conduct and provision of services, per se, may not constitute possession of proceeds absent supporting material. Precedent Treatment: Not discussed; Court's reasoning is fact-specific. Interpretation and reasoning: The defence emphasises the accused's status as a Chartered Accountant who rendered professional services within the framework of law and that there is nothing in the prosecution complaint to show possession of proceeds. The Court acknowledges this defence contention and treats the professional role and absence of direct proof of possession as relevant mitigating factors when weighed against prosecution allegations of central coordination. The Court implicitly recognises that professional assistance, without more, does not necessarily equate to money-laundering or possession of proceeds. Ratio vs. Obiter: Ratio - professional services and lack of direct pleadings/material showing possession of proceeds are relevant factors in the bail assessment under PMLA; Obiter - detailed demarcation between legitimate professional conduct and criminal culpability will depend on further evidence. Conclusion: The accused's professional role and the absence of direct material of possession weigh in favour of grant of bail, subject to appropriate conditions to address prosecution concerns. Issue 4 - Appropriateness and type of bail conditions to mitigate flight risk in PMLA matters Legal framework: Courts may impose conditions on bail to mitigate concerns such as flight risk; Section 45 bail is subject to such judicially imposed terms. Precedent Treatment: Not addressed by the Court; the decision relies on inherent judicial power to impose conditions. Interpretation and reasoning: The Enforcement Directorate's apprehension that the accused is a flight risk is accepted as a legitimate prosecutorial concern. The Court responds by directing conditional bail and specifying additional conditions to secure the accused's presence: surrender of passport and regular appearance before the Special Court whenever the prosecution complaint is posted. The Court instructs the Special Court to impose such and any other appropriate conditions. Ratio vs. Obiter: Ratio - where bail is granted in PMLA matters despite prosecution's flight-risk concerns, conditions such as surrender of passport and mandatory appearance are appropriate and can address the risk; Obiter - the precise suite of conditions may vary with case specifics and the discretion of the Special Court. Conclusion: The Court grants bail subject to the Special Court imposing conditions, including surrender of passport and requirement of regular appearance, thereby balancing the accused's liberty against the prosecution's legitimate concern about flight risk. Overall Conclusion The Court allows bail under Section 45 PMLA on the basis that prolonged absence of a final report in the 2013 predicate FIR, the accused's professional status and lack of direct material showing possession of proceeds collectively render continued incarceration unjustified; the grant of bail is made subject to specific conditions (surrender of passport and regular court appearances) to allay flight-risk concerns and with liberty to the Special Court to impose further appropriate terms. No costs.