PMLA bail and predicate-offence linkage: later FIRs and independent material can sustain prosecution, with bail granted on prima facie assessment.

PMLA proceedings may continue where later FIRs linked to the same alleged loan fraud support the existence of proceeds of crime, despite acceptance of a C-Summary in the original FIR. Setting aside a test audit report does not by itself dismantle the prosecution case when other material, including loan transactions and the money trail, remains available. For bail under the PMLA, the Court applied the twin-condition framework, found only limited prima facie linkage to the alleged proceeds, noted the absence of antecedents and prolonged custody, and granted bail with conditions.

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Issues: (i) Whether the continuation of money-laundering proceedings could be sustained after acceptance of the C-Summary in the original predicate offence, in the face of subsequently registered FIRs arising from the same bank scam; (ii) whether setting aside of the test audit report undermined the prosecution case; and (iii) whether the applicant satisfied the statutory conditions for bail under the PMLA.

Issue (i): Whether the continuation of money-laundering proceedings could be sustained after acceptance of the C-Summary in the original predicate offence, in the face of subsequently registered FIRs arising from the same bank scam.

Analysis: The offence under Section 3 of the PMLA is dependent on the existence of proceeds of crime derived from criminal activity relating to a scheduled offence, but it remains an independent offence. Once the scheduled offence ends in discharge, acquittal, quashing, or a comparable judicial closure, money-laundering cannot survive in relation to that crime. At the same time, where later FIRs disclose the same underlying criminal activity and were registered before the predicate case came to an end, the existence of proceeds of crime may still be made out prima facie. On the facts, the later FIRs registered in 2021, based on the test audit report and relating to the same loan fraud, were treated as sufficiently linked to the alleged criminal activity to justify continuation of the ED investigation notwithstanding acceptance of the C-Summary in FIR No.163 of 2018.

Conclusion: The money-laundering proceedings were not held to be extinguished on the ground of acceptance of the C-Summary in the original FIR.

Issue (ii): Whether setting aside of the test audit report undermined the prosecution case.

Analysis: The test audit report was not treated as the sole basis of the prosecution. The later order setting it aside only questioned the audit methodology and directed fresh audit consideration. Independent material, including the loan transactions, money trail, and allegations of siphoning of bank funds, remained available to support the prosecution version at the bail stage.

Conclusion: The setting aside of the test audit report did not demolish the prosecution case at the bail stage.

Issue (iii): Whether the applicant satisfied the statutory conditions for bail under the PMLA.

Analysis: While Section 45 of the PMLA imposes a stringent twin-condition framework, the Court found that the material prima facie did not sufficiently establish that the applicant had generated, acquired, layered, or used proceeds of crime to the alleged extent of Rs.60.67 crores. The money trail substantially connected him only with limited transactions, a significant part of the loan amount had already been repaid, no antecedents were shown, and prolonged custody made early conclusion of trial unlikely. The Court also clarified that release of co-accused on bonds under Section 88 of the Code did not amount to bail, so parity was not decisive.

Conclusion: The applicant was found entitled to bail.

Final Conclusion: The bail application was allowed, and the applicant was directed to be released subject to conditions, while the observations were confined to the bail decision and were not to influence the trial.

Ratio Decidendi: Money-laundering is dependent on the existence of proceeds of crime arising from a scheduled offence, but later linked FIRs and independent material may sustain the prosecution at the prima facie stage; for bail under the PMLA, the Court must assess the statutory restrictions on the basis of objective material and not require a final finding of innocence.

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