White Collar Criminal Law & Investigations
Newsletter: May 2024
WHITE COLLAR CRIMINAL LAW & INVESTIGATIONS
Newsletter: May 2024
PREVENTION OF MONEY LAUNDERING ACT
TWIN CONDITIONS OF BAIL DO NOT APPLY WHEN
ACCUSED NOT ARRESTED PRIOR TO COMPLAINT
As reported here, the Supreme Court has been
considering certain questions of seminal importance to
the law on Prevention of Money Laundering Act, 2002
(PMLA), particularly the application of the stringent
twin conditions on bail (set out in Section 45 of PMLA)
when the accused has not been arrested by Directorate
of Enforcement (ED) prior to cognizance taken by the
Special Court of the PMLA offence. The Supreme Court
has delivered its landmark judgement laying down
several clarificatory dictums, including the following:
(1)
(2)
(3)
Once the Special Court has taken cognizance of
the PMLA offences based on ED’s complaint
filed under PMLA, ED cannot arrest a person
arraigned as accused in the complaint;
thereafter, it can only arrest persons not shown
as accused in the complaint.
In such cases, as a normal rule, the Special Court
should issue a summons to the accused. If he
does not appear after a summons, the Special
Court can issue a warrant which should initially
be a bailable warrant, and if it is ineffective, then
non-bailable warrant.
If the accused appears before the Special Court
pursuant to the summons, he shall not be
treated as being in custody; therefore, there is
no question of granting him bail. This is crucial
because many PMLA Special Courts throughout
the country follow the practice of taking an
accused into custody once they appear pursuant
to the summons; after which they are compelled
to apply for bail. The Supreme Court has held
that such a practice is completely illegal. If ED
wants custody of an accused who appears after
service of summons, ED will have to seek such
custody by applying to the Special Court.
(4)
When the accused appears pursuant to a
summons, the Special Court is empowered to
take bonds under Section 88 of the Code of
Criminal Procedure, 1973 (CrPC). A bond
furnished under Section 88 is only an
undertaking by an accused who is not in custody
to appear before the Court on a given date (on
his default, pay the amount mentioned in the
bond). An order accepting such bond from the
accused does not amount to grant of bail. The
Supreme Court has distinguished a bond under
Section 88 from the bond under Section 441 of
the CrPC which is a bond furnished by an
accused when released from bail.
Tarsem Lal vs. Directorate of Enforcement Jalandhar
Zonal Office
GROUNDS OF ARREST TO BE FURNISHED IN WRITING
IN UAPA OFFENCES
In 2023, the Supreme Court in Pankaj Bansal vs. UOI,
2023 SCC OnLine 1244 (reported here) held that it is a
constitutional mandate under Article 22(1) of the
Constitution and a statutory mandate under Section 19
of the PMLA (the provision which empowers ED to
arrest) to inform the arrested person of the grounds of
arrest. This mandate makes it mandatory to furnish the
grounds of arrest to the accused in writing (merely
reading out such grounds to accused will not suffice).
The Supreme Court has now held that the provision
regarding communication of grounds of arrest in
Section 19 of PMLA is verbatim as that of Section 43B(1)
of the Unlawful Activities (Prevention) Act,1967 (UAPA)
and the mandate laid down in Pankaj Bansal applies
pari passu to UAPA. Any persons arrested under UAPA
has a fundamental and statutory right to be informed
of the arrest grounds in writing without exception, so
that he has effective means to consult his advocate,
oppose his remand, and seek bail. Infringement of this
right would vitiate the process of arrest and remand
and mere filing of a chargesheet would not validate the
illegality committed at the time of arrest or grant of
remand. Applying this principle, the Supreme Court in
this case quashed the arrest and remand order despite
a chargesheet having been filed as the accused was not
informed of the grounds of arrest prior to his remand
by the remand judge.
scheduled offence and proceeds of the crime are the
foundation of the offence of money laundering. Once a
person is discharged or acquitted of the predicate
offence, it knocks down the entire foundation and the
properties attached under the PMLA cannot be treated
as proceeds of crime. Till the judgment of acquittal in
the predicate offence is reversed in an appeal, all the
effects of acquittal continue to operate. Mere filing of
an appeal against such acquittal would not subject the
accused to rigors of criminal proceedings or
attachment under PMLA.
Directorate of Enforcement vs. Akhilesh Singh & Ors.
SECTION 436A OF THE CRPC APPLIES TO PMLA CASES
Prabir Purkayastha vs. State
ACQUITTAL IN THE SCHEDULED OFFENCE HALTS PMLA
PROCEEDINGS
In this case, the ED had initiated PMLA proceedings and
attached properties on the basis of certain scheduled
offences. The accused was acquitted of these
scheduled offences and, consequently, discharged
from the PMLA offence and properties released from
the PMLA attachment. However, the acquittal order
was challenged leading the ED to contend that the
acquittal will attain finality only after it is affirmed by
the appellate court and, consequently, the properties
attached under the PMLA cannot be released. Rejecting
this argument, the Delhi High Court reiterated that the
The Supreme Court has reiterated that Section 436A of
the CrPC, which entitles the court to grant bail to an
accused who has completed one-half of the maximum
sentence, applies to cases under the PMLA. However, it
is not an absolute right of bail and the court may deny
the relief in certain cases such as where the trial is
delayed by the accused. In this case, the Supreme Court
granted bail to the accused under Section 436A as he
had completed half of the prescribed sentence with no
possibility of a speedy trial, and the delay was not
attributable to the accused as even the charges had not
been framed.
Ajay Ajit Peter Kerkar vs. Directorate of Enforcement &
Anr.
NEGOTIABLE INSTRUMENTS ACT
PROCEEDINGS UNDER NI ACT IS NOT IMPACTED BY
VIRTUE OF SECTION 96 OF IBC
An individual can file for insolvency upon non-payment
of debts under the Insolvency and Bankruptcy Code,
2016 (“IBC”). Upon such an application, an interim
moratorium is imposed during which all pending legal
proceedings for any debt are stayed (Section 96, IBC).
The question whether this interim moratorium would
result in a stay of criminal proceedings initiated under
Section 138 of the Negotiable Instruments Act, 1881
(“NI Act”) against the signatory/ MD for dishonour of
cheque by their company has been answered in the
negative by the High Court of Punjab and Haryana.
Following the Supreme Court’s judgment in Ajay Kumar
Radheshyam Goenka vs. Tourism Finance Corporation
of India Ltd., (2023) 10 SCC 545 which held that Section
138 proceedings are not recovery proceedings but are
penal in nature, the High Court held that the
moratorium under Section 96 of IBC concerns
proceedings in respect of a debt and does not apply to
penal proceedings under Section 138 of the NI Act and
signatories/ directors responsible for the dishonour of
cheque cannot escape liability under Sections 138/141
of the NI Act.
Jitender Singh Sodhi & Anr. vs. Deputy Commissioner of
Income Tax & Anr.
COMPLAINANT’S CONSENT IS A PRE-REQUISITE FOR
COMPOUNDING OF OFFENCES UNDER NI ACT
The Supreme Court has clarified that compounding of
an offence necessarily requires consent of the
complainant/ aggrieved. This also holds true for the
offence of dishonor of cheque under Section 138 of the
NI Act. Even when the accused has paid the entire
cheque amount, he is not absolved from criminal
liability and the complainant cannot be compelled to
give consent for compounding. However, in such cases,
the court can quash the proceedings if their
continuance would defeat the ends of justice. The
Supreme Court quashed the proceedings in this case
when the complainant refused to give his consent for
compounding after the accused had repaid the cheque
amount with interest.
Raj Reddy Kallem vs. State of Haryana & Anr.
NARCOTIC DRUGS AND PSYCHOTROPIC SUBSTANCES ACT
IN NDPS CASES, ACCUSED HAS THE RIGHT TO SEEK
TIMELY TESTING OF CONTRABAND
application for direction to the chemical laboratory to
expeditiously conduct the test.
Under the Narcotic Drugs and Psychotropic Substances
Act, 1985 (NDPS) read with Rule 14 of the of the
Narcotic Drugs and Psychotropic Substances (Seizure,
Storage, Sampling and Disposal) Rules, 2022 (Rules),
drugs or substances seized from the accused are
required to be tested in a chemical laboratory, which is
obliged to submit the test report within 15 days of
receipt of the sample. The Kerala High Court has held
this to be a mandatory requirement as this report plays
a crucial role in deciding cases under the NDPS by
setting out the nature and quantity of the seized
substance. This is because an offence involving
commercial quantities (i.e., greater than prescribed
amounts) of certain drugs attract the twin conditions
on bail, a longer investigation period, and a harsher
punishment. The Court held that delay in such report
prejudices the accused and entitles him to file an
Anuraj vs. State of Kerala
CONFISCATION OF ARTICLE CANNOT BE ORDERED
WITHOUT HEARING THE PERSON CLAIMING RIGHT
Under NDPS trials, court can order confiscation of
articles seized under the NDPS Act whether the
accused is convicted, acquitted, or discharged (Section
63). However, such order cannot be made without
hearing any person who claims any right thereto.
Upholding the mandatory nature of this provision, the
Supreme Court set aside a trial court’s order of
confiscation of a vehicle which was passed without
hearing the owner.
Pukhraj vs. State of Rajasthan
CODE OF CRIMINAL PROCEDURE
CIVIL REMEDY FOR BREACH OF CONTRACT DOES NOT
BAR CRIMINAL PROCEEDINGS
POLICE SEIZURE DOES NOT GET VITIATED MERELY DUE
TO DELAYED REPORTING TO MAGISTRATE
The Jharkhand High Court reiterated the view that
criminal proceedings can be quashed under Section
482, CrPC when the matter is purely a civil dispute.
However, where the facts disclose a prima facie
criminal offence, the mere existence of a remedy for
breach of contract and initiation of arbitration
proceedings by the accused pursuant thereto does not
by iself lead to the conclusion that initiation of criminal
proceedings is an abuse of the process of the court
which must be quashed.
Under Section 102(3) of the CrPC, police can seize any
property suspected to have a direct or close link to the
commission of an offence. Upon such seizure, the
police is required to forthwith report it to the
Magistrate. Until now, there was a dichotomy in the
views held by various High Courts on whether a delay
in such reporting would vitiate the seizure or merely
constitute an irregularity. The Supreme Court has
settled the law on this by holding that such delay does
not vitiate the seizure as police’s power to seize is not
dependent on compliance with such post-action
reporting. While interpreting the term ‘forthwith’, the
Supreme Court held that when the law does not
indicate any fixed time for such reporting, it must be
completed within a reasonable amount of time. If the
Magistrate finds a delay without any reasonable
explanation, he may direct departmental enquiry
against the erring police official.
Asit C. Mehta Investment Intermediates Ltd. & Ors vs.
The State of Jharkhand & Anr.
BAIL CAN BE CANCELLED EVEN WITHOUT MISUSE IF
THERE ARE SERIOUS ALLEGATIONS
The Supreme Court has reiterated that an unreasoned
or perverse order of bail is always open to interference
by the superior court. A superior court could also
revoke the bail if the subordinate court granting bail
overlooked relevant material available on record, the
severity of the offense, or its societal impact. Bail can
also be cancelled by the court which granted it, if there
are serious allegations against the accused, even if the
bail has not been misused.
Ajwar vs. Waseem & Anr.
SUMMONS CAN’T BE ISSUED AGAINST A POST
Reiterating the position that summons in a criminal
case to face trial cannot be issued against positions or
posts, as they are not juridical persons, the Jharkhand
High Court quashed all criminal proceedings where the
summons order was issued against a non-existent post
without naming any individual responsible for the
alleged offence.
M/s. Steel Authority of India Ltd. vs. State of Jharkhand
Shento Varghese vs. Julfikar Husen & Ors.
PROSECUTION MUST DISCLOSE ALL INTENDED
EVIDENCE PRIOR TO FRAMING OF CHARGES
In a case where the Central Beureau of Investigation
(CBI) had seized certain hard disks but not made them
a part of the chargesheet, the trial court dismissed an
application made by the CBI seeking to place on record
such hard disks after the judgment in the trial was
reserved for pronouncement. Upholding such
dismissal, the Delhi High Court held that:
(1)
Article 21 guarantees right to a fair trial and a
duty is cast upon criminal courts under Section
207, CrPC to ensure that all documents sought
to be relied upon by the prosecution are
supplied to the accused before the trial
commences i.e., prior to framing of charges. This
is cardinal principle of criminal jurisprudence
(2)
and stems from the accused’s right of a fair
opportunity to put forth a defence.
EXEMPTION FROM PERSONAL APPEARANCE IS
PERMITTED PRIOR TO BAIL
Criminal courts can allow the prosecution to
bring evidence at a later stage (under Section 91
or 311 of the CrPC) only to correct an error
where the prosecution has mistakenly not filed
it; however, the same cannot be done for filling
up any lacunae during trial.
Referring to Section 205 of the CrPC, the Supreme
Court also held that it is incorrect to state that there is
no provision for granting exemption from personal
appearance prior to obtaining bail. Section 205 of CrPC
states that when a Magistrate issues summons, he may
dispense with the personal attendance of the accused
and permit them to appear through their pleader. The
Supreme Court held that this power should not be read
in a restrictive manner as applicable only after the
accused has been granted bail.
Central Bureau of Investigation vs. R. Vasudevan & Ors.
SANCTION UNDER SECTION 188 OF THE CRPC IS
NECESSARY ONLY IF THE ENTIRE OFFENCE IS
COMMITTED OUTSIDE INDIA
Under Section 188 of the CrPC, when an offence is
committed outside India by an Indian citizen or a
foreigner on ships/aircrafts registered in India, he may
be dealt with in respect of such offence as if it had been
committed at any place in India at which it may be
found or where the offence is registered in India.
However, no such offence can be inquired into or tried
in India except with prior sanction of the Central
Government. Relying upon the Supreme Court
judgment of Sartaj Khan vs. State of Uttarakand 2022
SCC OnLine SC 360, Kerala High Court has reiterated
that if the offence is not committed in its entirety
outside India, the matter would not come within the
scope of Section 188 and no prior sanction of the
Central Government would be required.
M. Amanulla Khan vs. Sajeena Vahab & Ors.
The Supreme Court further reiterated that settled
position of law that non-bailable warrants cannot be
issued in a routine manner and an individual’s liberty
cannot be curtailed unless necessitated by the larger
interest of public and the state. The Supreme Court also
observed that, while there are no comprehensive
guidelines for the issuance of non-bailable warrants,
Indian courts have repeatedly held that non-bailable
warrants should not be issued, unless the accused is
charged with a heinous crime, and is likely to evade the
process of law or tamper/ destroy evidence.
Sharif Ahmed & Anr. vs. State of Uttar Pradesh & Anr.
KEY CONTACTS:
Mr. Vikrant Singh Negi
Partner
(vikrantsingh.negi@dsklegal.com)
Ms. Ekta Tyagi
Partner
(ekta.tyagi@dsklegal.com)
Contributors:
Pratik Thakkar, Anjali Shah, Priyamvada Singhania, Sneha Barange
Disclaimer: This newsletter does not purport to be and should not be treated as professional guidance or a legal
opinion on any subject. The information has been compiled from different sources and does not reflect the
opinions/views of DSK Legal. If you no longer wish to receive such emails from us, feel free to write to us at
Knowledge.Management@dsklegal.com. Thank you for your cooperation and understanding.