Bombay High Court Refuses To Quash Arrest & Remand Of Jet Airways Founder Naresh Goyal In Money Laundering Case

The Bombay High Court on Tuesday dismissed the plea filed by Jet Airways founder Naresh Goyal seeking to quash his arrest and remand orders in the Rs. 538 Cr money laundering Case.

A division bench headed by Justice Revati Mohite Dere dismissed Goyal's habeas corpus plea but said it would be open for Goyal to pursue other statutory remedies available to him and observations in the order shouldn't affect those proceedings.

Goyal was arrested by the Enforcement Directorate(ED) in a money laundering case on September 1. The ED alleged fraud of Rs. 538 core at the Canara Bank.

In a petition filed through Naik Naik & Co, Goyal sought to quash his arrest memo and subsequent orders remanding him in custody. Goyal claimed the orders were "unwarranted, arbitrary and illegal". The ED case is based on an FIR by the CBI.

Goyal claimed that his family members received salaries in their capacity as employees of Jet Airways, countering Canara Bank’s allegation that he siphoned off funds from Jet Airways by paying for personal expenses such as salaries of staff, phone bills and vehicle expenses of the Goyal family.

Goyal was represented by Senior Advocates Amit Desai and Aabad Ponda along with advocate Ameet Naik.

Goyal claimed he was not provided the Grounds of Arrest in writing as required under section 19(1) of Prevention of Money Laundering Act, violating Articles 14, 21 and 22 of the Constitution. Further, the Sessions Judge authorised his detention without recording reasons for such detention, according to the petition.

Before arresting him, ED did not have a valid "reason to believe" that he committed the offence, as required under Section 19 of the PMLA, he further alleged. Moreover, the reason given in the remand application for his arrest, i.e., “for the purpose of identifying proceeds of crime”, is whimsical and arbitrary.

Significantly, Goyal claimed ED did not have jurisdiction to arrest him as the Bombay High Court has earlier stayed Canara Bank's order declaring Goyal’s and JIL’s accounts as fraudulent. “…if the predicate offence is stayed, then no consequential action can be taken by the Enforcement directorate"

He alleged non-application of mind on ED's part as there are no allegations of misrepresentation on part of JIL or Goyal while seeking the loans.

Further, the allegations mainly revolve around commercial disputes and do not constitute any criminal offense, the petition claimed.

Opposing the plea, Special Public Prosecutor Hiten Venegaonkar claimed that the arrest was legal and none of the provisions under PMLA were violated.

“The copy of arrest order bears Goyal’s signature acknowledging the fact that he was informed about the grounds of arrest when he was arrested. The grounds of arrest in writing were also mentioned in the case file which too has his signature,’’ Venegavkar submitted.

The note submitted by Venegaonkar to the HC read. “Since 19.07.2023, the Petitioner (Goyal) has been hoodwinking the ED officials for one or the other reasons from providing the necessary documents. The petitioner was also not attending the ED office but used to send replies and statements through his representatives. It was therefore thought fit that the enquiry under Section 50 should be done by personally visiting the petitioner on 01.09.2023 and therefore the officer, went to his residence to record his statement".

Case

In the FIR, CBI has relied on report of a forensic audit done by Ernst & Young LLP in 2018 at the instance of State Bank of India, leader of the consortium of lenders of JIL. CBI alleged that Rs. 1410.41 Crores were siphoned off out of total commission expenses from JIL by paying it to related parties.

Goyal has claimed that these commissions and reimbursements were made to General Sales Agents (GSA) for services rendered to JIL, as per their agreements. He has claimed that the commission percentages were in line with industry standards and were only paid for revenue generated after passengers had paid for their journeys. Goyal has argued that these payments cannot be considered as siphoning off funds.

JIL allegedly wrongly bore expenses worth Rs. 403.62 Crores of GSAs, which, according to sample agreements, should have been borne by GSAs themselves.

Goyal has claimed that these were reimbursements made towards expenses incurred by GSAs while making payments to third parties, and no amount was received by him, directly or indirectly. He has claimed that as per industry practice, while the GSAs have to bear their own expenses, the carrier has to reimburse any expense incurred by the GSA on its behalf.

JIL allegedly diverted funds to its subsidiary Jet Lite (India) Ltd (JLL) in the form of loans and advances. Between 2011-18, Rs. 14,552.44 Crores were allegedly given as loans to JLL, with Rs. 13,529.62 Crores received from JLL. These transactions allegedly diverted borrowed funds to JLL instead of utilizing them for their intended purpose.

Goyal in his petition has claimed that these funds were advanced to JLL to support its operations, as it is a wholly-owned subsidiary of JIL and both companies faced financial challenges. The financial statements of JLL were consolidated into JIL's statements, he has claimed. He has claimed out that these transactions were carried out transparently and in accordance with accounting standards.

As per the FIR, Rs. 1,152.62 Crores were spent on professional and consultancy expenses during the review period. Out of this, suspicious transactions worth Rs. 197.57 Crores were identified with entities linked to JIL's Key Managerial Personnel. Additionally, Rs. 420.43 Crores were allegedly paid to entities with invoices not matching their stated services.

Goyal maintains that the services provided by professional and consultancy entities were genuine, and their invoices were accurate. All transactions were audited by internal and external auditors, approved by the Audit Committee, Board of Directors, and shareholders of JIL, according to Goyal.