2024 (3) TMI 1137 - HC - Money Laundering

Bail granted in money laundering case after Special Judge failed to ensure Section 19 PMLA compliance during arrest

J&K HC allowed bail application in money laundering case. Petitioner challenged arrest and remand order by Special Judge, PMLA. Court held it had ... Effect of stay on predicate proceedings and consequent impact on PMLA proceedings - Jurisdictional fact for initiating PMLA proceedings - Compliance with Section 19 PMLA and furnishing grounds of arrest - Maintainability of parallel petitions - Non-application of mind in remand ordersMaintainability of parallel petitions - Petition under Article 226/Section 482 challenging arrest and remand within territorial jurisdiction of this Court is maintainable despite a related petition pending before the High Court of Punjab and Haryana. - HELD THAT: - The Court held that the events challenged before this Court - the arrest and the remand, which occurred within its territorial jurisdiction - constitute a distinct cause of action separate from the proceedings pending before the High Court of Punjab and Haryana. Consequently, identity of grounds in the two petitions does not disentitle the petitioner from invoking this Court's jurisdiction under Article 226 read with Section 482 Cr.P.C., and the preliminary objection as to maintainability was prima facie rejected. [Paras 12, 13]Petition is prima facie maintainable before this Court.Effect of stay on predicate proceedings and consequent impact on PMLA proceedings - Jurisdictional fact for initiating PMLA proceedings - Prima facie view that once investigation in predicate/scheduled offences is stayed, proceedings under the PMLA arising out of those predicate offences stand eclipsed and ED should not proceed further during the subsistence of such stay. - HELD THAT: - After reviewing authorities including the Division Bench of the Madras High Court and the Karnataka High Court and construing the Supreme Court's ratio in Vijay Mandanlal Choudhary, the Court observed that offences under the PMLA originate from scheduled/predicate offences and that the existence of jurisdictional facts (i.e., the subsistence of the predicate offence) is a condition precedent for PMLA proceedings. Where investigation in the predicate offences is stayed, those proceedings are in an 'eclipsed' state and that eclipse has a direct bearing on the PMLA investigation arising from them. Given the stay of investigation in the predicate FIR by the High Court of Punjab and Haryana, the Court was prima facie of the view that it was not open to the Enforcement Directorate to proceed against the petitioner under the PMLA while the stay subsisted. [Paras 17, 20]Prima facie the ED should not have proceeded under the PMLA while the predicate investigation was stayed; the PMLA proceedings stand eclipsed during such stay.Compliance with Section 19 PMLA and furnishing grounds of arrest - Non-application of mind in remand orders - The remand order passed by the Special Judge, PMLA does not record compliance with the requirement to furnish written grounds of arrest and otherwise shows non-application of mind, warranting interference for grant of interim relief. - HELD THAT: - Relying on the Supreme Court's guidance in Pankaj Bansal regarding the necessity of furnishing written grounds of arrest under Section 19(1) PMLA, the Court examined the Case Diary and noted that although grounds of arrest were furnished to the petitioner, the remand order fails to record whether those grounds were perused or whether statutory compliance was satisfied. The Special Judge's brief recital that she perused the Case Diary and remanded the accused because investigation was in early stages and the offence was serious was held to be mechanical and indicative of non-application of mind. On this basis the Court concluded that the remand order was vitiated in part and that interim relief was warranted. [Paras 22, 23, 24]Impugned remand order shows non-application of mind as it does not record compliance with Section 19(1) PMLA; this supports interim relief.Effect of interim relief pending final disposal - Interim release of the petitioner from custody subject to specified conditions was ordered. - HELD THAT: - Balancing the prima facie findings that the ED's initiation of PMLA proceedings was questionable in view of the stay of predicate investigation and that the remand order lacked sufficient record of statutory compliance, the Court directed the petitioner's release on bail on conditions: furnishing bail bond with two sureties to the satisfaction of the Special Judge, cooperating with investigation, depositing passport with ED and not leaving the country without prior permission of the Special Judge, and automatic withdrawal of bail if the stay of the predicate investigation is vacated. The Court made clear that these observations are confined to the interim application and do not decide merits of the main petition. [Paras 25, 26]Petitioner released on interim bail subject to conditions; observations limited to interim relief.Final Conclusion: The petition was held prima facie maintainable; the Court took a prima facie view that ED could not proceed under the PMLA while the predicate FIR's investigation was stayed and found the remand order to suffer non-application of mind for not recording compliance with Section 19(1) PMLA. On that basis interim bail was granted subject to specified conditions, with liberty to decide the main petition on merits at the next hearing. Issues Involved:1. Legality of the arrest and remand orders.2. Jurisdiction of the High Court of Jammu and Kashmir and Ladakh.3. Effect of stay on predicate offences on PMLA proceedings.4. Compliance with Supreme Court guidelines on arrest under PMLA.Summary:Legality of the Arrest and Remand Orders:The petitioner challenged the action taken by the respondent leading to his arrest under ECIR No. ECIR/JMSZO/02/2023 and subsequent remand orders, invoking Article 226 of the Constitution of India read with \u/s\ 482 Cr.P.C. The petitioner sought interim relief for release from custody.Jurisdiction of the High Court of Jammu and Kashmir and Ladakh:The court addressed the preliminary objection regarding the maintainability of the writ petition. It was determined that the petitioner rightly approached this court since the arrest and remand occurred within its territorial jurisdiction, despite similar contentions being raised before the High Court of Punjab and Haryana.Effect of Stay on Predicate Offences on PMLA Proceedings:The main contention was whether the respondent could proceed under PMLA when the investigation in the predicate offence was stayed. The petitioner relied on the judgment in B. Shanmugam v Karthik Dasari, which held that proceedings under PMLA should await the final outcome of the predicate offence. The court found this reasoning persuasive, noting that the Supreme Court in Vijay Mandanlal Choudhary's case stated that without a valid predicate offence, PMLA proceedings could not continue.Compliance with Supreme Court Guidelines on Arrest under PMLA:The petitioner argued non-compliance with the guidelines laid down by the Supreme Court in Pankaj Bansal v Union of India, which mandates furnishing written grounds of arrest. The court observed that while the grounds of arrest were provided, the Special Judge's remand order lacked detailed reasoning and did not confirm whether the grounds were perused, indicating non-application of mind.Interim Relief:Given the prima facie case, the petitioner was granted interim relief and directed to be released from custody on fulfilling conditions such as furnishing bail bonds, cooperating with the investigation, depositing his passport, and not leaving the country without permission. The bail would automatically withdraw if the stay on the predicate offences was vacated.Conclusion:The court granted interim relief to the petitioner, emphasizing that the observations were for the limited purpose of the interim application and not on the merits of the main petition, which was scheduled for further proceedings.