Bail cannot be refused under PMLA on the mere presumption that the assets recovered from the accused must be proceeds of crime: Delhi High Court

The Delhi High Court recently held that bail cannot be denied under the Prevention of Money Laundering Act, 2002 merely on the assumption that the property recovered from the accused was proceeds of crime must act.

Justice Dinesh Kumar Sharma rejected an appeal by the Enforcement Directorate (ED) against granting bail to accused Rahil Hiteshbhai Chovatia in a money laundering case on October 19, 2022.

The Special Cell of Delhi Police registered an FIR, whose investigation revealed that large-scale money laundering was taking place in which public funds were looted through apps like Power Bank App, Tesla Power Bank App, Ezplan, etc lure people with the promise of doubling their money in a short period of time.

ECIR was registered by ED in 2021. The investigation revealed that from August 2020 to June 2021, various shell companies were established or acquired by Chinese nationals with the help of Indian nationals, and bank accounts of the first-tier shell companies were used to collect money from the public.

ED alleged that the money was also laundered through several bank accounts of other bogus companies like M/s. Akash Corporation and M/s. Haresh Corporation is the second shell company. Ultimately, the laundered money was transferred out of the country under the guise of payments for imports, import logistics and in the form of cryptocurrencies, the investigative agency further claimed.

According to ED, the funds were further diversified and laundered through additional accounts including that of M/s. Sagar Diamonds Ltd. and M/s. Patel Rushabh & Co. are third-tier shell companies.

Chovatia was asked by ED to record his statement. However, ED claimed that instead of cooperating in the investigation, he tried to escape to Dubai and was arrested by the Bureau of Immigration in July 2022.

His statement was then recorded under Section 50 of the PMLA. In ED’s case, instead of furnishing the required details, Chovatia transferred the responsibility to his brother-in-law and claimed that he was looking after all matters relating to trade, export-import and finance for M/s. Sagar Diamond Ltd. and M/s. RHC Global Exports Pvt. Ltd.

The investigation agency said that despite being a director of both companies, Chovatia deliberately shifted the burden of providing information to his brother-in-law as he knew that he had already fled to Dubai and could not be contacted.

On the other hand, Chovatia alleged that even after granting bail, he continued to appear whenever and wherever under the direction of the ED. He also submitted that ED had sought cancellation of his bail with the sole motive of coercing and coercing him to “toe the line” of the investigating agency “to give a confessed statement”.

Justice Sharma dismissed ED’s plea and observed that the order granting bail was only prima facie These observations of the first instance court will not be taken into account in the final decision of the case.

“The ED’s case is based on the fact that the The defendant’s company received the funds from the first, second and third tier companies. It is to be borne in mind that even as per Vijay Madan Lal Chaudhary (supra), it has been categorically held that the elements of money laundering must be interpreted strictly,” the court said.

It added: “It is also no longer a matter of debate that the probative value of a statement under Section 50 of the PMLA is to be taken into consideration at the stage of trial.” Bail cannot be refused solely on the assumption that the property will be recovered from the defendant must Proceeds of crime.”

In addition, the court explained that the criminality of the transfer of funds should be taken into account at the stage of the proceedings. It added that ED was apprehensive that Chovatia would allow this If he remained on bail, he could derail the investigation or risk absconding, it was just an arrest and the authorities did not give a valid reason.

“The frequent exchange of funds disproportionate to the nature of business of Mr. Akash Panchal and the authenticity of the statement under Section 50 of the PMLA need to be examined during the trial.” The investigation has already been completed and the complaint has already been filed . I am of the view that there is no material on record to support ED’s application for cancellation of bail,” the court said.

However, it was clarified that any observations made by the trial court in the order granting bail will not be taken into account in the final assessment of the evidence.

Counsel for the plaintiff: Mr. Zoheb Hossain, Special ED Advocate with Mr. Vivek Gurnani, Mr. Kartik Sabharwal, Mr. Kanishk Maurya, Mr. Vivek Gaurav and Ms. Abhipriya Rai, Advs. for ED

Counsel for the Respondent: Mr. Vikram Chaudhari, Sr. Adv. with Mr. Rishi Sehgal, Ms. Arveen Sekhon, Ms. Nikita Gill, Ms. Muskaan Khurana, Advs

Title: DIRECTORATE OF ENFORCEMENT vs. RAHIL HITESHBHAI CHOVATIA

Click here to read the order