Supreme Court Sets Aside Bail in Money Laundering Case: Directs Surrender and Emphasizes Stringent Compliance with Section 45 of the PMLA, Orders Fresh Consideration by Patna High Court

Court’s Decision:

The Supreme Court of India set aside the bail granted by the Patna High Court to the respondent (accused in a money laundering case) and remanded the matter back to the High Court for fresh consideration by a different bench. The apex court observed that the High Court had not followed the mandatory twin conditions required under Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA). It ordered the respondent to surrender before the Special Court within one week. The Court also clarified that it was not expressing any opinion on the merits of the case and directed a fresh hearing.

Facts of the Case:

1. Background of the Allegations:
   • The case involved allegations of large-scale illegal sand mining by a company linked to the respondent’s family.
   • Several FIRs were registered under various sections of the Indian Penal Code (IPC) and the Bihar Mineral Rules, alleging revenue loss of ₹161.15 crores to the government due to illegal mining and sales without proper e-challans.
   • These offenses constituted “scheduled offenses” under Section 2(1)(y) of the PMLA.
2. Role of the Respondent:
   • The Enforcement Directorate (ED) alleged that the respondent was involved in laundering ₹17.26 crores, the proceeds of crime derived from illegal activities.
   • The money was allegedly used for acquiring a resort in Manali, construction of a school, and other personal/family ventures.
   • The ED claimed the respondent routed the proceeds through hawala networks and layered the money to project it as legitimate.
3. Prosecution Complaint:
   • The ED filed a Prosecution Complaint under Sections 3 and 4 of the PMLA against the respondent, citing his role in handling and concealing the proceeds of crime.
   • The Special Court for PMLA cases took cognizance of the complaint.
4. High Court’s Bail Order:
   • The Patna High Court granted regular bail to the respondent, citing his cooperation during the investigation and the inadmissibility of statements recorded under Section 50 of the PMLA.
   • The ED challenged this order before the Supreme Court, arguing that the High Court ignored the mandatory conditions of Section 45.

Issues:

1. Did the High Court err by granting bail without complying with the twin conditions under Section 45 of the PMLA?
2. Were the statements recorded under Section 50 of the PMLA admissible as evidence?
3. What is the extent of the burden of proof on the accused under the PMLA?

Petitioner’s Arguments (Union of India/ED):

1. Non-compliance with Section 45:
   • The ED argued that Section 45 requires courts to satisfy two conditions before granting bail:
     a. The prosecutor must be given an opportunity to oppose the bail application.
     b. The court must be satisfied that the accused is not guilty of the offense and will not commit further offenses while on bail.
   • The High Court did not comply with these mandatory conditions.
2. Grave Nature of the Offense:
   • Money laundering is a transnational crime with severe implications for the nation’s financial systems and integrity.
   • The respondent’s actions involved large sums of laundered money routed through hawala networks, showing deliberate and organized criminal conduct.
3. Admissibility of Evidence:
   • Statements recorded under Section 50 of the PMLA are admissible, as clarified in Vijay Madanlal Choudhary v. Union of India. These statements are not protected under Article 20(3) of the Constitution, as they do not constitute “testimonial compulsion.”

Respondent’s Arguments:

1. Inadmissibility of Statements:
   • The respondent argued that statements recorded under Section 50 violated Article 20(3) of the Constitution (protection against self-incrimination) and could not be relied upon.
2. Lack of Prima Facie Evidence:
   • The respondent contended that the allegations were based on inadmissible evidence, and his role in the predicate offense was not established.
   • He had cooperated with the investigation, including appearing before authorities and paying outstanding taxes.
3. Compliance with Summons:
   • The respondent appeared before the ED on specific dates and cooperated with the inquiry, demonstrating his willingness to assist in the investigation.

Analysis of the Law:

1. Section 45 of the PMLA:
   • Section 45 starts with a non-obstante clause, overriding provisions of the Criminal Procedure Code (CrPC) in case of conflict.
   • It imposes two strict conditions for granting bail:
     a. The prosecution must be allowed to oppose the bail application.
     b. The court must record satisfaction that there are reasonable grounds to believe the accused is not guilty and will not commit further offenses while on bail.
2. Burden of Proof under the PMLA:
   • Section 24 shifts the burden of proof to the accused to demonstrate that the proceeds of crime are not connected to money laundering.
   • This reverse burden aligns with the PMLA’s objective of combating organized financial crime.
3. Admissibility of Section 50 Statements:
   • Relying on Vijay Madanlal Choudhary, the Court held that Section 50 statements are not protected by Article 20(3) since they involve an inquiry, not a formal trial.
   • These statements are binding on the person summoned and are admissible as evidence.

Precedent Analysis:

1. Vijay Madanlal Choudhary v. Union of India (2022):
   • The Supreme Court clarified that Section 45 imposes strict conditions for bail in money laundering cases due to the grave nature of the offense.
   • It also upheld the admissibility of Section 50 statements and the reverse burden of proof.
2. Gautam Kundu v. Directorate of Enforcement (2015):
   • The Court emphasized that money laundering is distinct from predicate offenses and must be treated as an independent crime.
3. Rohit Tandon v. Directorate of Enforcement (2018):
   • The judgment reiterated the need for stringent bail conditions under the PMLA.

Court’s Reasoning:

The Supreme Court found that:

• The High Court’s order granting bail was “casual and cavalier,” ignoring the mandatory requirements of Section 45.
• The High Court failed to record findings on whether the respondent was not guilty of the offense or unlikely to commit further crimes while on bail.
• Money laundering is an aggravated form of crime requiring strict judicial scrutiny, given its transnational implications and impact on national security.

The Court stressed that any leniency in applying Section 45 would undermine the PMLA’s objectives and allow offenders to exploit legal loopholes.

Conclusion:

The Supreme Court quashed the High Court’s bail order, emphasizing the mandatory nature of Section 45 and the grave nature of money laundering offenses. It directed the respondent to surrender within one week and remanded the matter to the High Court for fresh consideration by a different bench.

Implications:

This judgment reinforces the strict compliance required under the PMLA’s bail provisions, sending a strong message about the seriousness of money laundering offenses. It also clarifies the admissibility of evidence and the reverse burden of proof under the PMLA, ensuring a robust legal framework to combat financial crimes.

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