HC's Findings Against ED Arrest Insignificant In View Of 'RK Arora' Judgment, Says Supreme Court While Upholding Bail Of PMLA Accused

The Supreme Court on September 6 dismissed a special leave petition filed by the Enforcement Directorate (ED) against the order of the Jharkhand High Court granting bail to one Dilip Kumar Ghosh@Dilip Ghosh in an alleged money laundering case. 

As per the brief allegations, a property was purchased from one Pradeep Bagchi by Dilip Ghosh on behalf of Jagatbandhu Tea Estate Pvt. Ltd., of which he is the Director. The property in question is alleged to be the subject matter in ongoing litigation with the Indian Army in terms of its possession. It was brought at a negotiated price of Rs.7.00 crore as against the prevailing value of over Rs.20 crores. 

The ED has alleged that the title of the sale deed is forged and that the accused Dilip Ghosh has played an active role as the Company's Director in laundering money. Charges under Section 3 and Section 4 read with 70 of the Prevention of Money Laundering Act, 2002 have been framed against him.

Arguments before Jharkhand High Court

The accused had approached the Jharkhand High Court seeking bail on the grounds that the mandate of Section 19 PMLA is not fulfilled because grounds of arrest were not furnished in writing as contemplated in Pankaj Bansal's judgment.

First, it was submitted that the Pankaj Bansal judgment applies retrospectively, as clarified by the judgment of the Punjab and Haryana High Court in Roop Bansal v. Union of India and another. The accused's counsel stated that although the judgment uses the expression 'henceforth', that does not mean that the directions given in the judgment are prospective in nature. Therefore, he argued that since the mandate of Section 19 is not complied with, it would vitiate the arrest. A reliance was placed on judgment of V. Senthil Balaji Vs. State Represented By The Deputy Director in this regard.

Second, the accused submitted that the twin conditions for bail under Section 45(1)(ii) are fulfilled. 

What did the Jharkhand High Court observe?

The High Court first looked at the non-compliance of Section 19 PMLA. It stated that Section 19 contemplates two things: first, it speaks with respect to 'reason to believe' to be recorded in writing and second, grounds of arrest to be informed to the accused. 

Relying on Pankaj Bansal, the High Court reiterated that a copy of the grounds of arrest is to be furnished to the arrested person as a matter of course and without exception.

On whether the expression 'henceforth' indicates that the Pankaj Bansal judgment is prospective or retrospective, the Court stated that the normal rule is that the judgment is always retrospective in nature unless it is declared prospective.

The Court stated that the expression 'henceforth' is used as a direction for future cases but it "cannot be construed by any imagination that the said judgment will not affect the cases in which the arrest has been done without service of grounds of arrest. The intention of the Hon'ble Apex Court was not to condone the illegalities committed by the Enforcement Directorate prior to passing of the judgment."

It therefore held: "At this stage it is also profitable to observe that like in any judgment there is a ratio, obiter and direction; by perusing the said paragraph of the Judgment of Pankaj Bansal (Supra) it is evident that ratio has been laid down by the Hon'ble Apex Court that "no arrest can be made without serving of copy of grounds of arrest to the accused" and the direction is given to the ED that "henceforth the ED should not commit that mistake and without fail in every case it must serve the copy of grounds of arrest". Thus, this court is of the considered view that the ratio laid down in the case of Pankaj Bansal (supra) will be squarely applicable in the instant case also. This Court also respectfully accepts the reasoning given in the case of Roop Bansal (supra) passed by the Division Bench of Punjab and Haryana High court which has been referred to herein above."

Based on this, the Court observed that the grounds of arrest were read over to the accused and the accused signed it. However, it was not furnished to him in writing. Therefore, Section 19(1) has not complied with.

Further, the Court pointed out that the prima facie evidence suggests that the ED has 'reason to suspect' whereas, Section 19(2) contemplates 'reason to believe'.

Making a distinction between the two, the Court said: "Reason to suspect is subordinate to reason to believe and cannot be equated with reason to believe. The expression reason to believe is made by two words i.e. reason and believe the word reason means cause or justification and the word believe means to accept as true or to have faith; thus, the officer has to have faith or accept a fact to exist and further there must be justification for such faith or acceptance."

The Court stated that "it is well settled that expression "reasons to believe" must be conditioned on the existence of tangible material and that reasons must have a live link with the formation of the belief" .However, the information received by the ED "prima facie appears to be allegation only which can raise suspicion in the mind of the authorities based on the information an enquiry can be triggered to find whether there is any material leading to formation of reason to believe".

Further, the Court stated that there are no proceeds of crime and there cannot be any allegations of money laundering without proceeds of crime. Therefore, the allegations accepted at face value and in their entirety, prima facie, do not make out a case under Section 3 or 4 of PMLA.  

Based on all these considerations, the Court concluded that the accused has not committed the crime or is likely to commit an offence while out on bail. 

Arguments before the Supreme Court 

Senior advocate S. Nagamuthu (for Dilip) on facts stated that the property in question was purchased after obtaining legal opinion. Therefore, neither the accused nor the Company had any knowledge that Pradeep Bagchi was not the owner of the property and that he had forged the ownership. 

Further, he stated that the property was purchased at a negotiated price of 7 crores. The money was paid through cheque out of which only one cheque for 25 lacs was encashed and the remaining would have been on the physical possession of the property.. 

He argued that the grounds of arrest had not been furnished to the accused. He added that to date, the grounds of arrest have not been given in writing. Nagamuthu added that the application of Pankaj Bansal's judgment is protective in nature and therefore, furnishing grounds of arrest is a mandatory requirement. Second, Section 19 requires 'reasons to believe'.

However, this condition is not fulfilled because ED has not been able to prove that the accused is involved in any other FIRs related to scheduled offences or forgery. He stated that there is no scheduled offence in this case because the ED has not been able to show any proceeds of crime. 

Whereas, Additional Solicitor General S.V. Raju (for ED) argued that the judgment of the High Court needs interference because Dilip is the kingpin in this case. As per ASG Raju, Dilip as the Director of the Company laundered money without even paying for the property. He argued that Pankaj Bansal has no application and the High Court was wrong in concluding in favour of the accused in this aspect. 

ASG Raju submitted that grounds of arrest were informed to the accused at the time of remand. Further, he claimed that the accused had been involved in tampering with the evidence and threatening the witnesses. 

Lastly, he insisted that if at all the Court holds in favour of Dilip, it should state that the observations made by the High Court should not be considered as a precedence as in the case of other accused persons. 

What did the Supreme Court say?

A bench of Justices Bela M. Trivedi and Satish Chandra Sharma considered that the charges against Dilip and other co-accused have been framed by the Special Court and that the respondent has complied with all the conditions imposed by the High Court.

Based on this, the court held: "Under the circumstances, without expressing any opinions on the merits of the case, rather clarifying that the impugned judgment and order passed by the High Court shall not be cited as a precedent in case of other coaccused, and any of the observations made therein, shall not influence the Trial Court/ Special Court during the course of trial, we are not inclined to interfere with the same. However, the Special Court/ Trial Court is directed to expedite the trial."

Further, the Court stated that the observations of the High Court against the ED's arrest based on Pankaj Bansal's judgment "have paled into insignificance" in view of the Ram Kishor. Arora v. ED (2023). While in the Pankaj Bansal judgment, the Supreme Court held that the grounds of arrest must be furnished in writing at the time of arrest, the latter judgment says the accused could be orally 'informed' of the grounds of arrest which may be furnished in writing within 24 hours of arrest. Ram Kishor also stated that the judgment in Pankaj Bansal won't apply retrospectively.

The Court's order states: "Further, it may be noted that in view of the subsequent judgment passed by this Court in Ram Kishor Arora Versus Directorate of Enforcement 2023 (SCC Online SC 1682), the observations made in the paragraph nos. 14- 16 and 18 of the impugned judgment and order passed by the High Court, have failed to paled into insignificance."

Case Details: Union of India through Directorate of Enforcement v. Dilip Kumar Ghosh@Dilip Ghosh, SLP(Crl) No. 275/2024

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