ED Opposes Bail Heavily But Takes No Step To Begin Trial: Mumbai Court While Granting Bail To Yes Bank Founder In 200 Cr Loan Fraud Case

Special Judge MG Deshpande granted him bail on a PR bond of Rs 1 lakh. However, he will not walk out of prison as he is held in other cases as well.

The court also came down heavily on the Enforcement Directorate for selectively arresting Kapoor and opposing bail but not taking any steps to begin the trial.

"ED simply opposes bail applications heavily, but never takes any active step in proceeding with trials, particularly as per the mandate of Sec.44(1)(c) of the PML Act and accused is an undertrial prisoner. Like this, in many other cases the Court is repeatedly directing ED to follow the true spirit and mandate of Sec.44(1)(c) of the PML Act," it remarked.

It also criticized the CBI for no progress on the investigation of the Predicate Offence in two years.

“If the Court accepts such modus­operandi of both Agencies (ED and CBI) in extending undue incarceration of the applicant (A3) (applicant) to uncertain extent, that will amount putting premium on such illegal acts”, it added.

The court found it “astonishing” that the ED never arrested Rakesh and Sarang Wadhawan, HDIL Promoters, and other top Yes Bank officials despite attributing similar roles to them in the crime. The court stated the ED cannot discriminate among accused persons having similar roles.

The court noted that Kapoor is on the verge of crossing the minimum punishment of three years provided in PMLA and has already undergone incarceration for 73% of the minimum punishment.

Prosecution Case

Mack Star Marketing Pvt. Ltd. is a joint venture between Mauritian company Ocean Deity Investment Holdings Ltd (ODIL) and Housing Development and Infrastructure Ltd (HDIL).

The Wadhawans were on Mack Star’s board of directors at various times and exercised full control over its day-to-day management and bank accounts from 2008 to 2019. According to its Articles of Association, Mack Star could not take any loan Rs. exceeding 20 lakhs without ODIL’s consent.

HDIL Group was in financial distress and struggling to repay its loans. Thus, the Wadhawans took out loans worth rupees 200 Crores from Yes Bank Ltd in the name of Mack Star without ODIL’s approval, the prosecution alleged.

The prosecution claimed that out of Rs. 200.3 Crores sanctioned loan, Rs. 138 Crore was credited in Mack Star’s account while Rs 64 Crore was directly transferred to HDI. Another Rs. 135 Crores were transferred from Mack Star’s account to accounts of HDIL Group companies on the same date of loan disbursement to settle their loans with Yes Bank.

ODIL initially did not notice the fraudulent loans as the auditor also colluded with the Wadhawans. However, when the investors realised this in 2016 and informed Yes Bank, it still disbursed more loans to Mack Star’s account, as per prosecution.

According to the prosecution, Yes Bank issued the loans without satisfying a condition of its sanction letter requiring it to obtain Non-Disposal Undertakings (NDU) from the investors. While it obtained NDU’s from the Wadhawans, it never approached the majority investors (ODIL) in order to hide the transaction from them, the prosecution alleged. Yes Bank dishonestly ignored Mack Star’s Articles of Association, it added.

CBI registered an FIR under sections 120B, 409, and 420 of IPC and sections 13(2) and 13(1)(d) of PC Act against the Wadhawans, two directors of HDIL, the chartered accountant firm, two private persons and unknown public servants and private persons.

Based on the FIR, ED registered an ECIR under sections 3 and 4 of PMLA and arrested Kapoor on January 27, 2021. Thus, he sought bail on medical grounds as well as parity as the other accused were either not arrested or are out on bail.

Parity With Co-accused

The court noted that as per the alleged roles of the Wadhawans, they are the main conspirators of this crime and everything else alleged by the prosecution is an outcome of their conspiracy allegedly in connivance with Rana Kapoor.

The court noted that the loan was of a huge amount and the bank would not sanction it only on the Managing Director’s direction. It added that all Management Credit Committee members had veto rights but continued with the loan. According to the prosecution, several top officials and department heads of the bank are equally responsible for the alleged generation of proceeds of crime.

Though ED had subjective satisfaction that these persons are guilty of an offence, they were not arrested under section 19 of the Prevention of Money Laundering Act, the court noted. Further, the Bombay HC granted bail to two accused who were arrested

The ED explained that the Wadhawans were already in judicial custody in another crime and their statements were recorded. Further, it has the prerogative to decide who to arrest, it contended.

The court opined that the Wadhawans, despite allegedly having prominent roles, benefited from ED’s discretion and mercy while Kapoor is undergoing undue incarceration. It also noted that the alleged monies never came back to Kapoor and there is nothing to show that he received any kickbacks from the alleged offence.

The court further noted that Kapoor was also in judicial custody in another case, just like Wadhawans. Still, ED sought a warrant to produce him before the court even though he was not named in the initial FIR. When he was produced before the court, he was formally arrested without any subjective satisfaction on the part of the authorized officer, the court noted.

The court concluded that Kapoor deserves parity with his co-accused as he has already paid the price of the alleged gravity of the offence by languishing in jail for more than two years.

Rejecting the right of parity to the accused would amount to putting a premium on ED’s illegal acts in the garb of having prerogative, the court held.

Non-committal Of Predicate Offence At The PMLA Court

The court found it “shocking” that the ED was completely unaware of the status of the case related to the predicate offence. Further, ED started looking for this information only after the court noticed Kapoor’s undue incarceration and gave repeated directions to the ED to comply with Section 44(1)(c) of PMLA, the court said.

The court said that under Section 44(1)(c), there has to be simultaneous but separate trial of the PMLA case and the case related to the predicate offence at the PMLA court. Unless the ED commits the case of predicate offence to the PMLA court, the trial of the PMLA case cannot begin.

“The way in which ED has been dealing with this case and even not aware of the said mandate until prevailed upon the Court to give repeated directions. If the same continues, the trial will never begin and the conclusion thereof will be only a dream. On the contrary rather honouring and following the mandate of Sec.44(1)(c) scrupulously, ED appears to have sabotaged the same”.

The Judge listed 11 PMLA cases having 17 undertrial prisoners dating back to 2019 in which ED has not taken any step to commit the cases relating to predicate offence at the PMLA court. It added that the Mumbai Special PMLA Court has the maximum number of cases and not a single trial has concluded.

The court further said that even after repeated directions to ED for compliance of Section 44(1)(c), ED pretends to hurry only for the trial of cases in which all accused have been bailed long ago. This is not a bonafide response for trial of under trial prisoners languishing in jail for long, the court stated.

The court said that ED has not taken any step begin the trials of the undertrial prisoners. Bail or discharge applications being pending in some of the cases does not preclude ED from complying with section 44(1)(c), the Judge said.

The court held that Kapoor incarceration cannot be continued simply on the CBI’s word that the investigation of the predicate offence is pending without any support by a progress report.

“If both Investigating Agencies are making further investigation, as contended by ED and CBI herein, without filing Progress Report, there will be no end and the outer limit of the sentence of 7 years will be crossed in the guise of further investigation, keeping the accused i.e. Rana Kapoor (A3), in undue incarceration, without any trial.”

The court noted that no charge sheet has been filed in the predicate offence and Kapoor’s name is not mentioned in the FIR. The allegations against Kapoor are the ED’s story. In the absence of any specific role attributed to Kapoor in the predicate offence, his involvement in the PMLA case cannot be ascertained, the court held.

The court noted the ED is aware that unless the predicate offences are committed to the PMLA court, the trial cannot begin. However, instead of doing that, the ED filed a draft charge. “It is only to pretend that ED is ready for trial knowing well that the Court cannot begin the same unless and until the case relating to the Scheduled Offence is committed”, the court said.

The court said that the trial is not likely to begin in the near future as the CBI has not even filed a chargesheet in the predicate offence.

The court noted that the National Company Law Tribunal, in Mack Star’s insolvency proceedings, concluded that the loan was a bonafide and secure transaction as far as Yes Bank is concerned.

Due to the above reasoning, the court granted bail to Kapoor.

Case Title: Rana Kapoor v. Directorate of Enforcement