Supreme Court of India
SANJAY RAGHUNATH AGARWALversusTHE DIRECTORATE OF ENFORCEMENT
- Citation
- 2023 INSC 408
- Decided
- 20 April 2023
- Disposal
- Appeal(s) allowed
- Bench
- V RAMASUBRAMANIAN
Holding
The Supreme Court held that the appellant's continued incarceration was not justified as the predicate offence had not been charge‑sheeted, and therefore bail must be granted subject to appropriate conditions.
Summary
The appellant, a chartered accountant, was arrested in September 2022 after the Enforcement Directorate (ED) filed an information report and a prosecution complaint under the Prevention of Money‑Laundering Act (PMLA) alleging his involvement in a fraudulent Global Depository Receipt (GDR) scheme that misappropriated funds raised for Farmax India Ltd. The underlying criminal complaint, registered in 2013 under the Indian Penal Code, had not resulted in a final report for nine years, and the complainant in that FIR was also sought for arrest by the ED but denied remand. The ED argued that the appellant was the mastermind and that both conditions of Section 45(1) of the PMLA were satisfied, justifying continued detention. The appellant contended that he merely provided professional services, no charge‑sheet had been filed for the predicate offence, and he was not in possession of proceeds of crime, making his incarceration unjustified. The Supreme Court held that while the second condition of Section 45(1) could be argued, the prolonged detention without a charge‑sheet on the predicate offence was not justified, and ordered bail with conditions to mitigate flight‑risk. Consequently, the appeal was allowed and the appellant was directed to be enlarged on bail subject to surrender of passport and regular court appearances.
Issues considered
- Whether the conditions prescribed under Section 45(1) of the Prevention of Money‑Laundering Act are satisfied in the appellant's case.
- Whether continued judicial custody of the appellant is justified in the absence of a charge‑sheet on the predicate offence for nine years.
- Whether the appellant, a chartered accountant, can be deemed to have possessed or dealt with proceeds of crime.
Legislation cited
- Code of Criminal Procedure, 1973s. 156(3)
- Indian Penal Code, 1860s. 120B, s. 34, s. 406, s. 407, s. 415, s. 416, s. 417, s. 418, s. 419, s. 420
- Prevention of Money Laundering Act, 2002s. 3, s. 44, s. 45, s. 45(1)
Subjects
bailmoney launderingPMLAglobal depository receiptschartered accountantEnforcement Directoratepredicate offenceFIRSEBIsection 45 PMLAflight risk
Judgment
[2023] 5 S.C.R. 461 461
SANJAY RAGHUNATH AGARWAL A
v.
THE DIRECTORATE OF ENFORCEMENT
(Criminal Appeal No. 1198 of 2023)
B
APRIL 20, 2023
[V. RAMASUBRAMANIAN AND PANKAJ MITHAL, JJ.]
Bail – A criminal complaint u/ss. 406, 407, 415 to 420, 120B
r/w s.34 IPC was filed against six persons, including the appellant
– Complaint was, that Farmax India Ltd. availed the services of the C
accused in raising Global Depository Receipts (GDRs), to the tune
of INR 318 crores; that though the accused raised the said amount,
they transferred to Farmax only a sum of INR 2.20 crores – According
to the Enforcement Directorate, the appellant and the others had
committed the offence of money-laundering – Enforcement Case D
Information Report (ECIR) was lodged – Appellant was arrested on
26.09.2022 – Enforcement Directorate also filed a prosecution
complaint u/ss. 44 and 45 of Prevention of Money-laundering Act,
2002 – From 26.09.2022 appellant was in jail – Held: ECIR and
the lodging of the prosecution complaint in the year 2022 were a
E
sequel to the registration of the FIR filed in 2013 – No final report
filed in the FIR for the predicate offence, for the past nine years –
De-facto complainant in the FIR for the predicate offence, was
sought to be arrested as an accused in connection with the ECIR,
but the application of the Enforcement Directorate for remand was
rejected – Prosecution complaint filed by the Enforcement F
Directorate, gives room for a valid argument that the second
condition found in Clause (ii) of sub-section (1) of Section 45 of
PMLA is satisfied qua the appellant – The continued incarceration
of the appellant not justified – Appellant directed to be enlarged on
bail. G
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.
1198 of 2023.
From the Judgment and Order dated 07.12.2022 of the High Court
for the State of Telangana at Hyderabad in CRLP No. 9695 of 2022.
H
461
462 SUPREME COURT REPORTS [2023] 5 S.C.R.
A R. Basant, Sr. Adv., M/s. Shakil Ahmad Syed, Tanmaya Mehta,
Syed Ahmed Saud, Lalit Valecha, Daanish Ahmed Syed, Mohd Parvez
Dabas, Uzmi Jameel Husain, Aqib Baig, Advs. for the Appellant.
S. V. Raju, ASG, Mukesh Kumar Maroria, Zoheb Hussain, Annam
Venkatesh, Ashok Panigrahi, Ms. Sairica Raju, Advs. for the Respondent.
B The Judgment of the Court was delivered by
PANKAJ MITHAL, J.
1. Leave granted.
2. Heard Shri R. Basant, senior counsel and Shri S.V. Raju, learned
C Additional Solicitor General for the parties.
3. A criminal complaint in FIR No.664/2013 was registered on
29.10.2013 with the Cyberabad Police, against six persons, including the
appellant herein for alleged offences under Sections 406, 407, 415 to
420, 120B read with Section 34 IPC. The FIR was registered on the
D basis of a complaint lodged by one M. Srinivas Reddy, who was the
Managing Director of a Company by name M/s Farmax India Limited1.
The gist of the complaint was, that Farmax availed the services of the
accused in raising Global Depository Receipts (GDRs), to the tune of
USD 71.09 millions equivalent to INR 318 crores; that though the accused
raised the said amount, they transferred to Farmax only a sum of USD
E
0.4 millions equivalent to INR 2.20 crores; and that upon enquiry with
the bank, the complainant company came to know that the accused has
misappropriated the balance amount by forging the signatures, with the
help of the pledged documents.
4. It is relevant to note here that the aforesaid FIR was registered,
F
pursuant to an Order passed by the VI Metropolitan Magistrate,
Cyberabad at Medchal, Rangareddy District, under Section156(3) of
the Code of Criminal Procedure, 1973.
5. Though the FIR was registered more than nine years ago, no
final report has been filed so far. However, the raising of GDR by Farmax
G became the subject matter of enquiry by Securities and Exchange Board
of India2. SEBI passed an Order dated 14.07.2020 holding that there
were violations of various provisions of Securities and Exchange Board
1
hereinafter referred to as “Farmax”
2
H For Short “SEBI”
SANJAY RAGHUNATH AGARWAL v. THE DIRECTORATE OF 463
ENFORCEMENT [PANKAJ MITHAL, J.]
of India Act, 1992 and various regulations of Securities and Exchange A
Board of India (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Market) Regulations, 2003. More particularly, SEBI
found one Mr. Arun Panchariya and a few others guilty of misleading
Indian investors through 14 identical GDR issues involving fraudulent
schemes.
B
6. Pursuant to the aforesaid, the Enforcement Directorate filed
an information report in ECIR No.HYZO/26/2022 dated 05.05.2022,
naming six individuals and nine entities, as persons suspected of
committing the offence of money-laundering under Section 3 of the
Prevention of Money-laundering Act, 20023.
C
7. After the lodging of the Enforcement Case Information Report,
the appellant was arrested by the Enforcement Directorate on 26.09.2022.
By an Order dated 27.09.2022, the appellant was remanded to judicial
custody by the Metropolitan Sessions Judge, Hyderabad. The Court also
granted the custody of the appellant to the Enforcement Directorate for
a period of six days from 06.10.2022 to 11.10.2022. D
8. Subsequently, the Enforcement Directorate filed a prosecution
complaint under Sections 44 and 45 of PMLA against four individuals
and two entities, namely, (i) Shri Sanjay Aggarwal, (ii) Shri Morthala
Malla Reddy, (iii) Shri Arun Panchariya, (iv) Shri Mukesh Chauradiya,
(v) M/s La Richesse Advisors Private limited represented by Shri Sanjay E
Aggarwal and (vi) M/s Vintage FZE, UAE represented by Shri Arun
Panchariya. The sum and substance of the complaint was, that Farmax
availed the services of the appellant herein and the other accused in
raising GDRs to the tune of USD 71.09 millions equivalent to INR 318
crores; that Vintage FZE, a wholly owned entity of Arun Panchariya F
solely subscribed to these GDRs, after availing a loan from EURAM
Bank, under a loan agreement dated 05.05.2020; that Farmax executed
a pledge agreement with EURAM Bank, undertaking that the entire
proceeds will be pledged to secure the loan granted by EURAM Bank;
that though Farmax issued GDRs, the proceeds were not credited to
Farmax’s credit in India, as the same had been kept as collateral; that G
Vintage FZE repaid only part of the loan and, hence, the balance amount
alone got released by the bank to Farmax; that this diversion of funds
caused a loss to Farmax to the extent of USD 15.60 millions; that the
3
For short “PMLA” H
464 SUPREME COURT REPORTS [2023] 5 S.C.R.
A GDRs were thereafter converted into equity shares and sold in the Indian
Stock Market; that when Farmax was advised by the appellant to go for
GDRs, Farmax was not eligible for the amount of GDR; that therefore,
the appellant herein and the entity owned by him took the lead role in
coordinating the offering; that the appellant was the central figure in the
entire drama; that the appellant is a qualified Chartered Accountant,
B
having had experience of working with stock exchange filings related to
GDRs; that the appellant was introduced by Arun Panchariya to Srinivas
Reddy; and that the appellant and the others had committed the offence
of money-laundering.
9. According to the Enforcement Directorate, the appellant was
C
responsible for creating the entire infrastructure for Farmax and Arun
Panchariya to bring about the fraudulent GDR issue and that the appellant
provided formats for Board Resolutions and also helped in transferring
the funds from the account of Farmax with EURAM Bank to the Farmax
subsidiary, namely, M/s. Farmax International FZE in UAE.
D
10. In the background of the above facts, it is contended by Shri
R. Basant, learned senior counsel: (i) that the appellant has been
languishing in jail from 26.09.2022, without any charge-sheet having been
filed against him in the predicate offence for the past more than nine
years; (ii) that even Srinivas Reddy at whose instance a FIR was
E registered way back in the year 2013 for the predicate offence was
arrested by the Enforcement Directorate, but the application filed by the
Enforcement Directorate for his remand was rejected by the Court; (iii)
that the appellant is a Chartered Accountant by profession and that he
offered only professional services within the framework of law; and (iv)
that there is nothing in the prosecution complaint to show that the appellant
F
is in possession of “the proceeds of crime”.
11. However, it is contended by Shri S.V. Raju, learned Additional
Solicitor General (i) that the appellant is the kingpin and the master mind
behind all the transactions; and (ii) that the petition for bail deserves to
be dismissed in view of the twin conditions prescribed in Section 45 of
G
PMLA.
12. We have carefully considered the rival contentions.
13. Since the main contention of the learned Additional Solicitor
General revolves around Section 45 of PMLA, it is necessary to see the
H specific role assigned to the appellant in the prosecution complaint lodged
SANJAY RAGHUNATH AGARWAL v. THE DIRECTORATE OF 465
ENFORCEMENT [PANKAJ MITHAL, J.]
by the Enforcement Directorate. The relevant portion of paragraph 8 of A
the prosecution complaint reads as follows:
“SPECIFIC ROLE OF THE ACCUSED/ CO-ACCUSED
PERSONS IN THECOMMISSION OF OFFENCE OF
MONEY LAUNDERING IN TERMS OFSECTION 3 OF
PMLA: B
• Role of Shri Sanjay Aggarwal (A-1):-
a) Based on Sanjay Agarwal’s assurances, M/s Farmax
India Limited decided to proceed with plans for a
GDR listing. At this point of time M/s Farmax India
C
Limited was not eligible for USD 72.20 million GDR.
Sanjay Agarwal and M/s La Richesse, accompanied
by Nitish Bangera took the lead role coordinating the
offering. Sanjay Agarwal decided on all the
participants, including the Lead Arranger (Prospect
Capital) and the company’s legal advisor (“Fox D
Mandal”). Although, Fox Mandal acted as counsel
to Farmax, the email communications indicate that
its role was limited to preparing a due diligence report
and the Listing Prospectus (“Prospectus”) to be filed
with the Luxembourg Exchange.
E
b) Sanjay Agarwal acted as an intermediary for almost
all communications with the various participants, and
gave instructions to M/s Farmax India Limited
before and after the offering. Notwithstanding that
Agarwal was the central figure who gave
F
instructions to Farmax which was duly followed by
Morthala Srinivasa Reddy. (A-1) being a qualified
Chartered Accountant, had experience of working
with stock exchange filings related to GDRs, and
was introduced by Arun Panchariya to MD of
Farmax Ltd, Shri M. Sreenivasa Reddy. (A-1) by G
representing Arun Panchariya’s firm Prospect
Capital before the depositary, the Bank of New York
and being well aware of the relation Arun
Panchariya had with EURAM Bank insisted all
companies going through GDR to open a bank H
466 SUPREME COURT REPORTS [2023] 5 S.C.R.
A account in that particular bank, (A-1) being well
aware of the arrangement between Arun
Panchariya and the Company promoters to share
the proceeds of GDR, took the lead role of
coordinating the offering, by purposely hiding the
subscriber list from submitting to Ahmedabad Stock
B
Exchange and hence was directly involved in the
process and activity connected with the proceeds
of crime including its acquisition and hence has
committed the offence of money-laundering as
defined under section 3 of PMLA, 2002 and is liable
C for punishment under Section 4 of PMLA, 2002.”
14. Keeping in mind the specific role attributed to the appellant,
let us now revert back to the facts pleaded and arguments advanced. At
the outset, there is no controversy about the following facts:
(i) that the registration of the ECIR and the lodging of the
D
prosecution complaint in the year 2022 were a sequel to
the registration of the FIR for the predicate offence, way
back in the year 2013, at the instance of one M. Srinivas
Reddy, Managing Director, Farmax and also a sequel to
the order passed by SEBI in the year 2020;
E
(ii) that no final report has been filed in the FIR for the predicate
offence, for the past nine years;
(iii) that even M. Srinivas Reddy, the de-facto complainant in
the FIR for the predicate offence, was sought to be arrested
as an accused in connection with the ECIR, but the
F
application of the Enforcement Directorate for remand was
rejected;
(iv) that the appellant is a Chartered Accountant by profession
and has been in jail from 26.09.2022; and
G (v) that the relevant portion of paragraph 8 of the prosecution
complaint filed by the Enforcement Directorate, which we
have extracted in the preceding paragraph, gives room for
a valid argument that the second condition found in Clause
(ii) of sub-section (1) of Section 45 of PMLA is satisfied
qua the appellant.
H
SANJAY RAGHUNATH AGARWAL v. THE DIRECTORATE OF 467
ENFORCEMENT [PANKAJ MITHAL, J.]
Therefore, the continued incarceration of the appellant, in our A
opinion, may not be justified.
15. However, the apprehension of the Enforcement Directorate
that the appellant is a flight-risk and may go out of the country if released
on bail, has to be taken care of by imposing appropriate conditions.
16. In view of the above, the appeal is allowed and the appellant B
is directed to be enlarged on bail in ECIR No.HYZO/26/2022 dated
05.05.2022, subject to such terms and conditions as may be imposed by
the Metropolitan Sessions Judge-cum-Special Court under PMLA,
Nampally, Hyderabad. The conditions to be imposed by the Special Court
shall include the following additional conditions: C
(i) The appellant shall surrender his passport before the Special
Court; and
(ii) The appellant shall regularly appear before the Special Court
without fail whenever the prosecution complaint filed by
ED is posted. D
The appeal is allowed on the above terms. No costs.
Ankit Gyan Appeal allowed.
E
F
G
H
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