2024 (9) TMI 1602 - HC - Money Laundering

ED arrest quashed in money laundering case due to lack of evidence linking petitioner to illegal mining proceeds

The HC quashed the petitioner's arrest by ED in a money laundering case involving illegal mining. The court found that petitioner was not named as accused ... Legality of arrest under the Prevention of Money Laundering Act, 2002 - requirement of recorded 'reasons to believe' and communication of 'grounds of arrest' - scheduled offence requirement for prosecution under the PMLA - effect of omission/deletion of an offence from the Schedule to the PMLA - judicial review of remand orders where foundational arrest is illegal - subsequent judicial validation cannot cure initial illegality (sublato fundamento cadit opus) - right to personal liberty and humane treatment during interrogation under Article 21Legality of arrest under the Prevention of Money Laundering Act, 2002 - requirement of recorded 'reasons to believe' and communication of 'grounds of arrest' - Whether the arrest of the petitioner under the PMLA was legally sustainable. - HELD THAT: - On scrutiny of the grounds of arrest and the materials placed on record the Court found no prima facie material linking the petitioner to the affairs of M/s Development Strategies India Pvt. Ltd. (DSPL) or to the alleged syndicate. The public document from the Ministry of Corporate Affairs (Director Master Information, P-8) showed that the petitioner ceased to be a director of DSPL w.e.f. 07.11.2013 and the ED produced no material to the contrary. The 'grounds of arrest' and 'reasons to believe' relied upon the narrative of 'illegal mining' and beneficiary status, but did not establish that the petitioner was a person in charge or connected to the alleged G.M. Co.; nor was existence or registration of such an entity shown. In that factual matrix the Court concluded that there was no reason to believe, within the meaning of Section 19 PMLA, that the petitioner was guilty of an offence under the PMLA and that the arrest was therefore unsustainable. [Paras 6, 7, 8, 13]Arrest quashed as there was no material to justify reasons to believe that petitioner was guilty of an offence under the PMLA.Scheduled offence requirement for prosecution under the PMLA - effect of omission/deletion of an offence from the Schedule to the PMLA - Whether allegations rooted in 'illegal mining' or offences under the Environment Protection Act, 1986 could sustain prosecution under the PMLA in the present case. - HELD THAT: - The Court observed that the core allegations concerned 'illegal mining' and related environmental contraventions. The Mines and Minerals (Development and Regulation) Act offences are not part of the PMLA Schedule, and Paragraph 25 of the Schedule (offences under the Environment Protection Act, 1986) has been omitted by the Jan Vishwas (Amendment of Provisions) Act, 2023 with effect notified on 13.08.2024. In view of the amendment and notification, prosecution based on the deleted paragraph would be unwarranted. On the material before it, the Court held that the foundational predicate for invoking PMLA in respect of the environmental offences and the illegal mining narrative was not established against the petitioner. [Paras 9, 12]Prima facie prosecution under PMLA based on the environmental/illegal mining allegations was not sustainable; deletion of Paragraph 25 reinforced that such offences cannot serve as a valid scheduled predicate in this case.Judicial review of remand orders where foundational arrest is illegal - subsequent judicial validation cannot cure initial illegality (sublato fundamento cadit opus) - Whether the remand orders dated 20.07.2024 and 29.07.2024 could validate an arrest which the Court found to be illegal. - HELD THAT: - Applying the principle that if the foundational action is contrary to law the superstructure collapses (sublato fundamento cadit opus), the Court held that judicial orders of remand cannot cure an unlawful arrest. The Court examined the materials and concluded that the arrest and its recorded grounds lacked the necessary foundation; consequently, the subsequent remand orders based on that arrest were rendered indefensible in law. [Paras 14, 15]Remand orders issued on the basis of the illegal arrest were quashed and set aside.Right to personal liberty and humane treatment during interrogation under Article 21 - Whether the manner and duration of interrogation legitimately supported the necessity for arrest or custodial detention. - HELD THAT: - The Court noted that the petitioner had complied with summons under Section 50 PMLA and was interrogated for an extended period (about 14 hours 40 minutes) before arrest. While not converted into a determinative legal ground for release, the Court observed that prolonged interrogation in one stint is inimical to human dignity under Article 21 and recommended that the ED adopt reasonable time limits and humane practices during investigations. That observation formed part of the Court's evaluative context in concluding that arrest was unnecessary in the factual matrix before it. [Paras 10]Observation recorded regarding humane limits to interrogation; such treatment did not justify the arrest in the circumstances of this case.Legality of arrest under the Prevention of Money Laundering Act, 2002 - judicial review of remand orders where foundational arrest is illegal - Relief to be granted consequent to findings on illegality of arrest and remand. - HELD THAT: - Having found absence of material to constitute 'reasons to believe' and that the predicate offences relied upon were not sustainably within the PMLA Schedule for the present prosecution, the Court concluded that the arrest, the grounds of arrest and the remand orders were indefensible and must be set aside. The Court clarified its order should not be treated as an expression on the ultimate merits of the ED's complaint under Sections 44/45 PMLA. [Paras 13, 20, 21]Arrest order, grounds of arrest and the remand orders quashed; petitioner to be released forthwith if not required in any other case.Final Conclusion: Petition allowed. The arrest order and grounds of arrest dated 20.07.2024 and the remand orders dated 20.07.2024 and 29.07.2024 are quashed and set aside as legally indefensible; petitioner ordered to be released forthwith if not required in any other case. Observations on Article 21 and investigative conduct are recorded; no expression made on the merits of the ED's complaint under Sections 44/45 PMLA. Issues Involved:1. Legality of the petitioner's arrest.2. Validity of the remand orders.3. Allegations of political vendetta.4. Compliance with the provisions of the Prevention of Money Laundering Act (PMLA).5. Role of the petitioner in the alleged illegal mining activities.6. Admissibility and sufficiency of evidence against the petitioner.7. The impact of judicial precedents on the case.Issue-wise Detailed Analysis:1. Legality of the Petitioner's Arrest:The petitioner filed a petition under Section 482 of the Code of Criminal Procedure, 1973, seeking to declare his arrest illegal, non-est, and against the statutory provisions of the PMLA, Cr.P.C., and the Constitution. The petitioner argued that he was not named in the FIRs that formed the basis of the ECIR and that no specific role was attributed to him in dealing with proceeds of crime. The court observed that the allegations against the petitioner primarily pertained to 'illegal mining,' which is not a scheduled offense under the PMLA. The court also noted that the petitioner ceased to be a Director of Development Strategies (India) Pvt. Ltd. (DSPL) w.e.f. 07.11.2013, and there was no material to substantiate his involvement in the company's affairs thereafter.2. Validity of the Remand Orders:The petitioner sought to set aside the remand orders dated 20.07.2024 and 29.07.2024 passed by the Special Court, PMLA, Ambala. The court noted that the remand orders were based on the petitioner's alleged involvement in illegal mining activities. However, the court found that there was no material to substantiate the petitioner's role in these activities or his association with DSPL after 07.11.2013. The court also observed that the NGT's order imposing a penalty on DSPL was stayed by the Supreme Court, subject to the payment of 60% of the penalty amount. Consequently, the court quashed the remand orders.3. Allegations of Political Vendetta:The petitioner contended that his arrest was politically motivated, aimed at preventing him from contesting the upcoming State Legislative Assembly elections. The court noted that the timing of the arrest coincided with the election period and that the petitioner had been cooperating with the investigation. The court found that the arrest appeared to be an outcome of political vendetta and not based on concrete evidence.4. Compliance with the Provisions of the PMLA:The court examined whether the arrest and subsequent actions complied with the provisions of Section 19 of the PMLA. The court observed that the grounds of arrest and reasons to believe were not substantiated by concrete evidence. The court emphasized that the satisfaction of the arresting officer should not be based merely on suspicion but on concrete evidence. The court also noted that the petitioner was interrogated for an extended period without any incriminating material being found.5. Role of the Petitioner in the Alleged Illegal Mining Activities:The court found that the allegations against the petitioner were primarily related to illegal mining activities, which are not scheduled offenses under the PMLA. The court noted that the petitioner ceased to be a Director of DSPL w.e.f. 07.11.2013 and that there was no material to substantiate his involvement in the company's affairs thereafter. The court also observed that the NGT's order imposing a penalty on DSPL was stayed by the Supreme Court, subject to the payment of 60% of the penalty amount.6. Admissibility and Sufficiency of Evidence Against the Petitioner:The court found that there was no material to substantiate the petitioner's involvement in illegal mining activities or his association with DSPL after 07.11.2013. The court also noted that the allegations of illegal mining were not supported by concrete evidence and that the petitioner had been cooperating with the investigation. The court emphasized that the arrest should be based on concrete evidence and not merely on suspicion.7. The Impact of Judicial Precedents on the Case:The court referred to various judicial precedents cited by both parties. The court noted that the principles laid down in these precedents emphasized the need for concrete evidence and compliance with the provisions of the PMLA before arresting a person. The court found that the arrest and remand orders in the present case did not comply with these principles and were not supported by concrete evidence.Conclusion:The court allowed the petition, quashing the arrest order, grounds of arrest dated 20.07.2024, and the remand orders dated 20.07.2024 and 29.07.2024. The court directed the immediate release of the petitioner if not required in any other case. The court emphasized that the observations made should not be construed as an expression of opinion on the merits of the complaint filed by the E.D under Section 44 read with Section 45 of the PMLA before the Special Court, Ambala.