2025 (10) TMI 552 - HC - Money Laundering

Bail denied under PMLA sections 24 and 45; arrest valid, prima facie link to GST invoice fraud and money laundering

Amit Agarwal @ Vicky Bhalotia Versus Directorate of Enforcement, through its Assistant Director, Jharkhand.

HC dismissed the petition for regular bail under the PMLA, holding the arrest valid and lawfully made. Court found prima facie involvement of the ... Money Laundering - seeking grant of regular bail - proceeds of crime - fraud committed of availing ITC on the strength of bogus invoices, by way of creation of multiple companies/firms in the name of innocent persons - reasons to believe - statements recorded under Section 50 of the PMLA are admissible or not - HELD THAT:- The objective of the PMLA is to prevent money laundering which has posed a serious threat not only to the financial systems of the country but also to its integrity and sovereignty. The offence of money laundering is a very serious offence which is committed by an individual with a deliberate desire and the motive to enhance his gains, disregarding the interest of the nation and the society as a whole, and such offence by no stretch of imagination can be regarded as an offence of trivial nature. The stringent provisions have been made in the Act to combat the menace of money laundering. The reason for giving explanation under Section 2(1)(u) is by way of clarification to the effect that whether as per the substantive provision of Section 2(1)(u), the property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country then the property equivalent in value held within the country but by way of explanation the proceeds of crime has been given broader implication by including property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence. The purposes and objects of the 2002 Act, for which, it has been enacted, is not limited to punishment for offence of money-laundering, but also to provide measures for prevention of money-laundering. It is also to provide for attachment of proceeds of crime, which are likely to be concealed, transferred or dealt with in any manner which may result in frustrating any proceeding relating to confiscation of such proceeds under the 2002 Act. This Act is also to compel the banking companies, financial institutions and intermediaries to maintain records of the transactions, to furnish information of such transactions within the prescribed time in terms of Chapter IV of the 2002 Act. The Hon’ble Apex Court in the case of Tarun Kumar vs. Assistant Director Directorate of Enforcement [2023 (11) TMI 904 - SUPREME COURT] by taking into consideration the law laid down by the Larger Bench of the Hon’ble Apex Court in Vijay Madanlal Choudhary and Ors. Vs. Union of India and Ors. [2022 (7) TMI 1316 - SUPREME COURT (LB)], it has been laid down that since the conditions specified under Section 45 are mandatory, they need to be complied with. The Court is required to be satisfied that there are reasonable grounds for believing that the accused is not guilty of such offence and he is not likely to commit any offence while on bail. The conditions enumerated in Section 45 of PMLA will have to be complied with even in respect of an application for bail made under Section 439 CrPC. That coupled with the provisions of Section 24 provides that unless the contrary is proved, the authority or the Court shall presume that proceeds of crime are involved in money-laundering and the burden to prove that the proceeds of crime are not involved, lies on the petitioner. It is the considered view of this Court that herein the arrest of the Petitioner is valid both procedurally and substantively and the officer effecting arrest was authorised, possessed material in his custody, formed a reasoned belief based on that material, recorded the same in writing, informed the Petitioner of the grounds of arrest, and forwarded all material to the Adjudicating Authority, thereby satisfying all legal requirements under the PMLA and the binding judgments of the Hon'ble Supreme Court, therefore, the contention of the learned counsel for the petitioner about legality of the arrest, is hereby negated. It is evident that the allegation against the petitioner that he is part of organized syndicate operating through 135 shell companies for issuance of bogus GST invoices involving ITC exceeding Rs. 750 crores. These invoices were used to illegally avail and pass on Input Tax Credit (ITC) to various entities causing wrongful loss to the government exchequer. The proceeds of crime were layered through several accounts to project them as legitimate - From investigation, it is evident that the petitioner Amit Agarwal @ Vicky Bhalotia was a key mastermind in the criminal conspiracy, operating as the head of the syndicate's fraudulent activities in Jamshedpur, Jharkhand. He was directly involved in creating and managing his own network of shell entities, generating substantial proceeds of crime, and laundering these funds in close coordination with the other masterminds. The Hon’ble Apex Court in the case of Vijay Madanlal Choudhary and Ors. Vs. Union of India and Ors. [2022 (7) TMI 1316 - SUPREME COURT (LB)] has reiterated the same view and has observed that the Court while dealing with the application for grant of bail need not to delve deep into the merits of the case and only a view of the court based on available material on record is required - prima-facie on the basis of the material available in prosecution complaint the role of the present petitioner in the alleged money laundering cannot be negated. The involvement of the Petitioner in directing dummy persons, creating forged documents, and misusing control over shell firms is not only substantiated but has been corroborated by statements under Section 50 of the PMLA and materials recovered during search - Further, the grant of bail to the Petitioner in BA No. 569 of 2024 by this Court in connection with a predicate offence has no bearing on the present bail application under PMLA. It is a settled principle that the offence of money laundering is a standalone and continuing offence, as recognized in Vijay Madanlal Choudhary (supra), and grant of bail in the predicate offence does not create any presumption in favour of bail. In the present case, the investigating agency has relied not only on the statement of co-accused under Section 50 of the PML Act, 2002 but also other evidences which indicate the applicant's active role in the alleged money laundering activities - By virtue of Section 24 of the PML Act, 2002, the respondent-ED is not required to conclusively establish the applicant's guilt at the pre-trial stage, rather, the applicant must demonstrate that the proceeds of crime attributed to him are not linked to money laundering. In the absence of any rebuttal by the applicant, the presumption under Section 24 of the PML Act, 2002 stands in favor of the respondent, thereby, justifying his continued detention. On the basis of the aforesaid discussions and taking into consideration the grave nature of the allegations, the sophisticated modus operandi employed to project tainted property as untainted, and the strict statutory framework governing bail under the PML Act, 2002, it is the considered view of this Court that no ground exists for the petitioner to claim the benefit of bail on merits. The gravity of the offence, and the serious allegations of facilitating the laundering of proceeds of crime continue to justify the petitioner's custody under the strict rigours of Section 45 of the Act 2002 - This Court is conscious of this fact that while deciding the issue of granting bail in grave economic offences it is the utmost duty of the Court that the nature and gravity of the alleged offence should have been kept in mind because corruption poses a serious threat to our society should be dealt with by iron hand. Since the petitioner has failed to make out a special case to exercise the power to grant bail and considering the facts and parameters, necessary to be considered for adjudication of bail, this Court does not find any exceptional ground to exercise its discretionary jurisdiction to grant bail - it is the considered view of this Court that granting bail to the Petitioner would send a wrong signal to society and embolden economic offenders, thereby, undermining public confidence in the justice delivery system. The offence in question is not a mere fiscal offence but a crime against the economic health of the nation, with a cascading effect on honest taxpayers, market integrity, and state revenue, therefore, this Court is of the view that it is not a case where the prayer for bail is to be granted. The instant bail application stands dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether the arrest complied with the requirements of Section 19(1) of the PMLA - specifically formation of 'reasons to believe' based on material in possession, written recording thereof, communication of grounds of arrest to the arrestee, and validity of the arresting officer's authority. 2. Whether statements recorded under Section 50 of the PMLA, including those of co-accused and summoned witnesses, are admissible and can be relied upon to implicate the petitioner. 3. Whether the material on record discloses a prima facie case under Section 3 (and punishment under Section 4) of the PMLA - i.e., involvement in processes/activities connected with 'proceeds of crime' - and whether prosecution has met foundational facts necessary to invoke statutory presumptions under Section 24. 4. Whether the stringent bail regime in Section 45(1) PMLA (twin conditions: reasonable grounds for believing the accused is not guilty; not likely to commit an offence while on bail) bars grant of regular bail in the present case, including interaction with CrPC powers and relevant precedents. 5. Ancillary issues: (a) whether Section 41 CrPC requirements apply to PMLA arrests; (b) whether delay in investigation/custody alone warrants bail; (c) whether reliance on predicate-agency material or ECIR non-supply vitiates PMLA action. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of Arrest under Section 19(1) PMLA Legal framework: Section 19(1) permits arrest by authorised officers 'on the basis of material in his possession, reason to believe (recorded in writing) that any person has been guilty of an offence', and mandates informing the arrestee of grounds of arrest; Section 19(2) requires forwarding arrest order and material to the adjudicating authority; Article 22(1) supplies constitutional backdrop. Precedent treatment: The Court canvassed and applied the principles in binding authorities that (a) reasons must be recorded in writing and communicated (three-Judge Bench decisions), (b) supply of ECIR is not mandatory but informing grounds is sufficient, (c) subsequent case law required furnishing written grounds 'henceforth' and clarified temporal scope. The Court distinguished instances where written grounds were not furnished in compliance with later pronouncements but recognized prospective effect of some refinements. Interpretation and reasoning: The Court examined the arrest record and annexures and found: written 'Reasons to Believe' and separate 'Grounds of Arrest' were recorded and furnished; contemporaneous acknowledgement by the arrestee; seizure and Section 50 summons preceded arrest; arresting officer was a designated authorised officer; material in possession (financial, digital, nexus evidence) supported the reasoned belief. The Court rejected arguments requiring the arresting officer to have personally gathered all material and rejected application of Section 41 CrPC to PMLA arrests, noting the PMLA's special-law regime. Ratio vs. Obiter: Ratio - where written reasons are recorded based on material in possession and grounds are communicated to the arrestee, the arrest complies with Section 19(1) and Article 22(1). Obiter - discussion on practical realities of multi-officer investigations and non-necessity of personal presence at searches by the arresting officer. Conclusion: Arrest held valid procedurally and substantively; statutory safeguards under Section 19 complied with and remand lawful. Issue 2 - Admissibility and Reliance on Section 50 Statements Legal framework: Section 50 empowers authorised officers to summon and record statements; Section 50(4) deems such proceedings judicial for purposes of IPC offences of false evidence; Sections 65 and 71 make PMLA provisions override inconsistent CrPC rules. Precedent treatment: The Court reiterated that Section 50 statements are admissible and distinguishable from police statements under CrPC; higher courts have upheld Section 50's evidentiary value and its non-application of Article 20(3) where the person was not an accused at the time of summons. The Court relied on authorities confirming admissibility and utility of Section 50 material for establishing involvement. Interpretation and reasoning: The petitioner's contention that confessional statements of co-accused recorded in custody cannot be used was rejected because prosecution relied also on statements of independent witnesses, documentary, financial and digital material recovered during searches, and Section 50 statements were recorded in inquiry context that retains evidentiary status under PMLA. The Court noted established jurisprudence that confessional statements of co-accused are not sole substantive proof, but Section 50 statements collectively can make 'a formidable case.' Ratio vs. Obiter: Ratio - Section 50 statements are admissible and may be relied upon along with corroborative material; reliance solely on confessional co-accused statements demands caution but is permissible where other material corroborates. Obiter - commentary on distinctions vis-à-vis CrPC statements. Conclusion: Section 50 statements and corroborative evidence legitimately inform the prima facie case against the petitioner and are admissible for pre-trial assessment. Issue 3 - Prima Facie Culpability under Section 3 PMLA and Section 24 Presumption Legal framework: Section 3 defines money-laundering as involvement in processes/activities connected with proceeds of crime (concealment, possession, acquisition, use, projecting/claiming as untainted); Section 2(1)(u) defines 'proceeds of crime'; Section 24 creates a rebuttable presumption that proceeds are involved in money-laundering where a person is charged under Section 3. Precedent treatment: The Court applied authoritative interpretations that (a) Section 3 is broad and captures partial involvement in listed activities; (b) existence of predicate scheduled offence is necessary to classify property as proceeds of crime; (c) once foundational facts are established, Section 24 shifts burden to accused to rebut. Interpretation and reasoning: The prosecution complaint, bank transaction analysis, recovery from searches, nexus with shell entities, alleged control of multiple firms, and Section 50 statements collectively constituted material demonstrating generation, acquisition, layering and use of illicit funds and operational/financial linkages with the wider syndicate. The Court emphasized that at the bail stage it must take a prima facie view based on available material and need not undertake trial-level scrutiny. Ratio vs. Obiter: Ratio - where material shows involvement in activities connected to proceeds of crime and foundational facts are established, Section 24 presumption applies and a prima facie case under Section 3 is made out for purposes of bail assessment. Obiter - detailed factual findings were limited to prima facie observations without prejudice to trial. Conclusion: Sufficient prima facie material exists to implicate the petitioner under Section 3; statutory presumption under Section 24 operates unless rebutted by the petitioner. Issue 4 - Application of Section 45(1) Bail Regime and Grant of Regular Bail Legal framework: Section 45(1) makes offences under PMLA cognizable and non-bailable and prescribes twin conditions for bail when Public Prosecutor opposes: (i) court satisfied there are reasonable grounds for believing accused is not guilty; (ii) accused is not likely to commit an offence while on bail. Section 45(2), Section 65 and Section 71 reinforce PMLA's overriding scheme; CrPC powers apply only to the extent not inconsistent. Precedent treatment: The Court applied binding precedents that the twin conditions are mandatory, courts must take a prima facie view from investigation material (not weigh evidence), and the presumption under Section 24 aids prosecution at bail stage; authorities also caution that where investigation is complete and cooperation is full, bail may be considered, but PMLA offences are treated stringently. Interpretation and reasoning: Examining the prosecution material and judicial precedents, the Court concluded the petitioner failed to satisfy the first limb (reasonable grounds to believe not guilty) given the weight of financial/digital/statement evidence and failed to dispel statutory presumption. The second limb (risk of reoffending/witness tampering) was not rebutted in light of alleged role and control over shell entities and evidence of non-cooperation. Delay in custody alone was held insufficient to discharge Section 45 burden. Ratio vs. Obiter: Ratio - Section 45 twin conditions were not met; therefore bail not warranted. Obiter - discussion on public interest, economic offence gravity, and balancing liberty with societal impact. Conclusion: Bail refused - petitioner failed to establish reasonable grounds for believing he is not guilty and to show he would not commit offences on bail; PMLA rigours prevail. Issue 5 - Ancillary Matters: CrPC applicability, ECIR supply, arresting officer's authority, custody delay Legal framework & precedent treatment: PMLA is a special law; Section 19 procedure and Section 50 regime diverge from CrPC norms where inconsistent; ECIR is internal and not required to be supplied though grounds must be communicated; recent authorities refined communication practice prospectively. Interpretation and reasoning: The Court rejected application of Section 41 CrPC requirements to PMLA arrests and found that the arresting officer was authorised and entitled to rely on assembled material (including subordinate officers' inputs). Non-supply of ECIR did not invalidate arrest where grounds were communicated; limited custody delay did not justify bail given offence gravity. Ratio vs. Obiter: Ratio - PMLA procedures operate independently of Section 41 CrPC; written communication of grounds of arrest and authorised officer's recorded reasons suffice; delay alone not a ground for bail in grave economic offences. Obiter - practical observations on multi-agency investigations and record forwarding to adjudicating authority. Conclusion: Ancillary objections (CrPC applicability, ECIR non-supply, officer's participation) did not vitiate arrest or preclude reliance on the material; custody duration did not warrant bail under the circumstances.