Supreme Court Clarifies Applicability of Section 45 PMLA in Anticipatory Bail: Directorate of Enforcement vs. M. Gopal Reddy (2023)

Date of the Judgment: 24 February 2023

Citation: 2023 INSC 163

Judges: M.R. Shah, J. and C.T. Ravikumar, J.

Can the stringent conditions for bail under Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA) apply to anticipatory bail applications? The Supreme Court of India addressed this critical question in a recent judgment, clarifying the legal position and setting aside a High Court order that had granted anticipatory bail without considering these restrictions. This case revolves around allegations of money laundering and the interpretation of legal provisions related to bail in such cases. The bench comprised Justices M.R. Shah and C.T. Ravikumar, with the judgment authored by Justice M.R. Shah.

Case Background

The case originated from a First Information Report (FIR) registered by the Economic Offences Wing (EOW), Bhopal, on 10 April 2019, concerning a scam involving the Madhya Pradesh e-Procurement Portal. The FIR named 20 individuals and companies, including M/s Max Mantena Micro JV, Hyderabad. The investigation revealed that officials of MPSEDC, in collusion with companies responsible for maintaining the portal, manipulated the bidding process to favor certain private bidders in exchange for bribes.

M/s Mantena Group of Companies, Hyderabad, was identified as a major beneficiary of this scam. Specifically, M/s Max Mantena Micro JV allegedly benefited from a tampered e-tender worth Rs. 1020 Crore. The Enforcement Directorate (ED) initiated a money laundering investigation under the PMLA, leading to searches at 18 premises, including residences and offices of the involved companies. The ED’s investigation uncovered a conspiracy involving infrastructure companies, government officials, and IT management companies to illegally win e-tenders, with large sums of money exchanged through hawala channels.

M. Gopal Reddy, the first respondent, who was Additional Chief Secretary in the Water Resources Department of Madhya Pradesh, was summoned by the ED to explain the allocation of tenders to M/s Mantena Construction during his tenure. Fearing arrest, he filed an anticipatory bail application before the High Court of Telangana at Hyderabad. The High Court granted him anticipatory bail, stating that the restrictions under Section 45 of the PMLA do not apply to anticipatory bail proceedings under Section 438 of the CrPC. The ED then appealed to the Supreme Court.

Timeline:

Course of Proceedings

The High Court of Telangana at Hyderabad allowed the anticipatory bail application of the respondent, M. Gopal Reddy, observing that the provisions of Section 45 of the PMLA do not apply to proceedings under Section 438 of the CrPC. The High Court relied on the Supreme Court’s decision in Nikesh Tarachand Shah vs. Union of India (2018) 11 SCC 1. The Directorate of Enforcement (ED) appealed this decision to the Supreme Court, arguing that the High Court had misinterpreted the Nikesh Tarachand Shah case and that the restrictions under Section 45 of the PMLA should apply to anticipatory bail applications as well.

Legal Framework

The core legal issue revolves around the interpretation of Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA). This section imposes stringent conditions for granting bail in cases involving money laundering. Specifically, Section 45(1) states that:

“Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), no person accused of an offence [under this Act] shall be released on bail or on his own bond unless—(i) the Public Prosecutor has been given an opportunity to oppose the application for such release; and (ii) where the Public Prosecutor opposes the application, the court is satisfied that there are reasonable grounds for believing that he is not guilty of such offence and that he is not likely to commit any offence while on bail…”

This provision mandates that a court can grant bail only if the Public Prosecutor is given a chance to oppose the bail and if the court is convinced that the accused is not guilty and is unlikely to commit further offenses. The Supreme Court had to determine whether these conditions also apply to anticipatory bail applications filed under Section 438 of the Code of Criminal Procedure, 1973 (CrPC).

Arguments

Arguments by the Directorate of Enforcement (Appellant):

• The High Court erred in holding that Section 45 of the PMLA does not apply to anticipatory bail proceedings under Section 438 CrPC.
• The High Court wrongly relied on the decision in Nikesh Tarachand Shah (supra), which was clarified in The Asst. Director Enforcement Directorate Vs. Dr. V.C. Mohan (2022 SCC OnLine SC 452).
• The decision in Dr. V.C. Mohan (supra) clarified that Section 45 of the PMLA applies to offenses under the PMLA, even in anticipatory bail applications.
• The High Court did not appreciate the seriousness of the offenses under the PMLA and considered the matter as if it were an ordinary offense under the Indian Penal Code (IPC).
• There is a nexus between the respondent and Srinivas Raju Mantena, who is accused of money laundering, which needs detailed investigation.
• The respondent was evasive and non-cooperative during questioning and his custodial interrogation is required.
• The respondent availed free trips on Mantena’s luxury plane and other patronages, indicating a quid pro quo.

Arguments by M. Gopal Reddy (Respondent):

• The High Court did not commit any error in granting anticipatory bail.
• Other accused in the main FIR have been acquitted/discharged, implying there can be no money laundering offense against him.
• The respondent was not named in the FIR for the scheduled offenses.
• The offense under the PMLA is dependent on the predicate offense, and since other accused are acquitted, there is no case against him under the PMLA.
• The High Court followed the decision in Nikesh Tarachand Shah (supra), which was the law at the time.
• The prospective overruling of Nikesh Tarachand Shah (supra) in Dr. V.C. Mohan (supra) should not affect the High Court’s decision.
• The respondent cooperated in the investigation and appeared before the ED twice.

Issues Framed by the Supreme Court

The Supreme Court considered the following key issue:

1. Whether the High Court was justified in granting anticipatory bail to the respondent, M. Gopal Reddy, without considering the rigors of Section 45 of the Prevention of Money Laundering Act, 2002?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

The Court also considered Section 45 of the Prevention of Money Laundering Act, 2002.

Judgment

The Supreme Court allowed the appeal filed by the Directorate of Enforcement and set aside the High Court’s order granting anticipatory bail to M. Gopal Reddy. The Court clarified that the restrictions under Section 45 of the PMLA apply to anticipatory bail applications under Section 438 of the CrPC. The Court held that the High Court had misinterpreted the decision in Nikesh Tarachand Shah (supra) and had not considered the seriousness of the offenses alleged against the respondent.

How each authority was viewed by the Court?

• Nikesh Tarachand Shah vs. Union of India; (2018) 11 SCC 1: The Supreme Court clarified that the High Court had misinterpreted this judgment. The Court stated that the decision was not an authority for the proposition that Section 45 of the PMLA does not apply to anticipatory bail applications.
• The Asst. Director Enforcement Directorate Vs. Dr. V.C. Mohan; (2022 SCC OnLine SC 452): The Supreme Court relied on this judgment to clarify that the rigors of Section 45 of the PMLA apply to anticipatory bail applications. The Court stated that this decision clarified the correct legal position.
• P. Chidambaram Vs. Directorate of Enforcement; (2019) 9 SCC 24: The Supreme Court cited this judgment to emphasize that in economic offenses, the court must be very slow in exercising discretion under Section 438 of CrPC.
• Y.S. Jagan Mohan Reddy Vs. CBI; (2013) 7 SCC 439: The Supreme Court cited this judgment to highlight the impact of economic offenses on society and the need for a thorough investigation.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to uphold the stringent provisions of the Prevention of Money Laundering Act, 2002 (PMLA), and to ensure that economic offenders are not able to evade justice through anticipatory bail. The Court emphasized the seriousness of the offenses under the PMLA and the need for a thorough investigation, particularly in cases involving high-ranking officials and large-scale financial irregularities.

Fact:Law Ratio

The court’s reasoning was primarily based on the interpretation of legal provisions and precedents, with a secondary focus on the factual aspects of the case.

“Once the enquiry/investigation against respondent No. 1 is going on for the offence under the Act, 2002, the rigour of Section 45 of the Act, 2002 would be attracted.”

“Therefore, the observations made by the High Court that the provisions of Section 45 of the Act, 2002 shall not be applicable in connection with an application under Section 438 Cr.PC is just contrary to the decision in the case of Dr. V.C. Mohan (supra) and the same is on misunderstanding of the observations made in the case of Nikesh Tarachand Shah (supra).”

“While granting the anticipatory bail to respondent No. 1 the High Court has not at all considered the nature of allegations and seriousness of the offences alleged of money laundering and the offence(s) under the Act, 2002.”

Key Takeaways

• The stringent conditions for bail under Section 45 of the PMLA apply to anticipatory bail applications under Section 438 of the CrPC.
• Courts must consider the seriousness of offenses under the PMLA and not treat them as ordinary offenses under the IPC.
• Misinterpretations of previous judgments can lead to errors in judicial decisions, highlighting the need for careful analysis of precedents.
• Economic offenses, particularly money laundering, are considered serious and require thorough investigation.
• Custodial interrogation may be necessary in cases involving economic offenses.

Directions

The Supreme Court directed that M. Gopal Reddy be dealt with in accordance with the law. However, it clarified that if he is arrested and applies for regular bail, the same should be considered on its own merits and in accordance with the law, taking into account the material collected during the investigation.

Development of Law

The ratio decidendi of this case is that the rigors of Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA) apply to anticipatory bail applications made under Section 438 of the Code of Criminal Procedure, 1973 (CrPC). This clarifies the legal position, overturning the previous understanding based on a misinterpretation of the Nikesh Tarachand Shah case. This judgment changes the previous position of law that Section 45 of PMLA does not apply to anticipatory bail.

Conclusion

The Supreme Court’s judgment in Directorate of Enforcement vs. M. Gopal Reddy clarifies that the stringent conditions for bail under Section 45 of the PMLA apply to anticipatory bail applications. This decision ensures that individuals accused of money laundering cannot easily obtain bail and emphasizes the seriousness of economic offenses. The Court set aside the High Court’s order, underscoring the need for a thorough investigation and adherence to legal provisions in such cases.

Category

Parent Category: Criminal Law

Child Categories:

• Money Laundering
• Anticipatory Bail
• Prevention of Money Laundering Act, 2002
• Section 45, Prevention of Money Laundering Act, 2002
• Code of Criminal Procedure, 1973
• Section 438, Code of Criminal Procedure, 1973

FAQ

Q: What is the main issue in the Directorate of Enforcement vs. M. Gopal Reddy case?

A: The main issue is whether the restrictions on bail under Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA) apply to anticipatory bail applications under Section 438 of the Code of Criminal Procedure, 1973 (CrPC).

Q: What did the Supreme Court decide about the applicability of Section 45 of PMLA to anticipatory bail?

A: The Supreme Court clarified that the restrictions under Section 45 of the PMLA do apply to anticipatory bail applications. This means that courts must consider the stringent conditions for bail under Section 45 even when dealing with anticipatory bail.

Q: What was the High Court’s view on this issue?

A: The High Court had granted anticipatory bail, stating that Section 45 of the PMLA does not apply to anticipatory bail proceedings. The Supreme Court overturned this decision.

Q: What is the significance of this judgment?

A: This judgment ensures that individuals accused of money laundering cannot easily obtain anticipatory bail. It emphasizes the seriousness of economic offenses and the need for a thorough investigation. It also clarifies the interpretation of Section 45 of the PMLA in relation to anticipatory bail.

Q: What should someone do if they are accused of money laundering?

A: If you are accused of money laundering, it is important to seek legal counsel immediately. Given the stringent provisions of the PMLA, it is crucial to understand your rights and obligations under the law.