Supreme Court Sets Aside Anticipatory Bail in Money Laundering Case: Directorate of Enforcement vs. M. Gopal Reddy (24 February 2023)

Introduction

Date of the Judgment: 24 February 2023

Citation: Criminal Appeal No. 534 of 2023 (@SLP (Crl) No. 8260/2021)

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

Can a person accused of money laundering be granted anticipatory bail without the stringent conditions of Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA) being considered? The Supreme Court of India recently addressed this critical question, clarifying the interplay between the PMLA and the Code of Criminal Procedure (CrPC) regarding anticipatory bail. This judgment clarifies that the restrictions on granting bail under the PMLA also apply to anticipatory bail applications. 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 an FIR registered by the Economic Offences Wing (EOW), Bhopal, on 10 April 2019, concerning an e-tender scam. The FIR implicated 20 individuals and companies, including M/s Max Mantena Micro JV, Hyderabad. The Madhya Pradesh government’s e-procurement portal, managed by MPSEDC, was allegedly compromised by officials colluding with companies responsible for the portal’s maintenance, namely M/s Antares Systems Limited and M/s Tata Consultancy Services (TCS). These officials manipulated the bidding process to favor certain private bidders in exchange for bribes.

The investigation revealed that several e-tenders were illegally accessed, and bids were manipulated to ensure that certain companies were awarded contracts. M/s Mantena Group of Companies, Hyderabad, was identified as a major beneficiary of this scam. Specifically, M/s Max Mantena Micro JV, a joint venture of the Mantena Group, was found to have benefited from a tampered e-tender worth ₹1020 Crore.

The Enforcement Directorate (ED) initiated a money laundering investigation (ECIR/HYZO/36/2020) on 15 December 2020, based on the scheduled offenses under the PMLA. Searches were conducted at 18 premises, including residences and offices of the involved parties, leading to the seizure of incriminating documents and digital devices. The ED investigation indicated a conspiracy involving infrastructure companies, government officials, and IT management companies to illegally win e-tenders, with large amounts of bribes exchanged through hawala channels.

Respondent No. 1, M. Gopal Reddy, who was the Additional Chief Secretary in the Water Resources Department of Madhya Pradesh during the relevant period, was summoned by the ED to explain the allocation of tenders to M/s Mantena Construction. Apprehending arrest, he filed an anticipatory bail application before the High Court of Telangana. The High Court granted him anticipatory bail, stating that Section 45 of the PMLA does not apply to anticipatory bail proceedings, relying on the Supreme Court’s decision in Nikesh Tarachand Shah vs. Union of India (2018) 11 SCC 1. The ED then appealed to the Supreme Court against this order.

Timeline

Course of Proceedings

The High Court of Telangana allowed the anticipatory bail application of Respondent No. 1, M. Gopal Reddy, relying on the judgment of the Supreme Court in Nikesh Tarachand Shah vs. Union of India (2018) 11 SCC 1, which had held that the provisions of Section 45 of the PMLA do not apply to anticipatory bail proceedings. The High Court directed that M. Gopal Reddy be released on bail in the event of his arrest in connection with the ED case.

The Directorate of Enforcement (ED) appealed against this decision, arguing that the High Court had erred in its interpretation of the law. The ED contended that the decision in Nikesh Tarachand Shah had been clarified by the Supreme Court in The Asst. Director Enforcement Directorate vs. Dr. V.C. Mohan (2022 SCC OnLine SC 452), which held that the rigors of Section 45 of the PMLA do apply to anticipatory bail applications.

Legal Framework

The core legal issue revolves around the interpretation of Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA). The PMLA aims to prevent money laundering and provides stringent conditions for granting bail to those accused of such offenses.

Section 3 of the PMLA defines the offense of money laundering as:

“Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming it as untainted property shall be guilty of offence of money-laundering.”

Section 4 of the PMLA prescribes the punishment for money laundering, which includes rigorous imprisonment and a fine.

Section 45 of the PMLA, titled “Offences to be cognizable and non-bailable,” specifies the conditions under which a person accused of an offense under the PMLA can be released on bail. It states:

“(1) 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 section imposes a dual condition for bail: the Public Prosecutor must be given an opportunity to oppose the bail, and the court must be satisfied that there are reasonable grounds to believe the accused is not guilty and is unlikely to commit further offenses while on bail.

Arguments

Arguments by the Directorate of Enforcement (ED):

• The High Court erred in holding that Section 45 of the PMLA does not apply to anticipatory bail proceedings under Section 438 of the CrPC. The High Court wrongly relied on Nikesh Tarachand Shah (supra).
• The Supreme Court in Dr. V.C. Mohan (supra) clarified that the rigors of Section 45 of the PMLA apply to anticipatory bail applications.
• The High Court did not appreciate the seriousness of the offenses under the PMLA, treating it as an ordinary offense under the Indian Penal Code (IPC).
• The ED’s investigation revealed a nexus between M. Gopal Reddy and Srinivas Raju Mantena, who is allegedly involved in money laundering.
• M. Gopal Reddy was evasive and non-cooperative during questioning, necessitating his custodial interrogation.
• M. Gopal Reddy availed free trips on Mantena’s luxury plane and received other patronage, including foreign exchange through hawala channels for his son.
• The nature of allegations against M. Gopal Reddy, who was a high-ranking government official, warrants a thorough investigation.
• The ED relied on P. Chidambaram vs. Directorate of Enforcement (2019) 9 SCC 24 and Y.S. Jagan Mohan Reddy vs. CBI (2013) 7 SCC 439 to argue that economic offenses impacting society require a cautious approach in granting anticipatory bail.

Arguments by M. Gopal Reddy (Respondent No. 1):

• The High Court did not err in granting anticipatory bail.
• Other accused in the main FIR for the scheduled offense have been acquitted/discharged.
• If the person is discharged/acquitted of the scheduled offense, there can be no offense of money laundering against him.
• M. Gopal Reddy was not named in the FIR for the scheduled offense.
• The offense under the PMLA depends on a predicate offense, which in this case is under ordinary law and IPC.
• The High Court followed the decision in Nikesh Tarachand Shah (supra), which was the prevalent law at the time.
• The prospective overruling of Nikesh Tarachand Shah in Dr. V.C. Mohan (supra) should not affect the High Court’s decision.
• M. Gopal Reddy cooperated with the investigation and appeared before the ED.

Submissions Table

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the provisions of Section 45 of the Prevention of Money Laundering Act, 2002, apply to anticipatory bail applications under Section 438 of the Code of Criminal Procedure, 1973.

Treatment of the Issue by the Court

Authorities

Cases Cited by the Court:

• Nikesh Tarachand Shah vs. Union of India; (2018) 11 SCC 1 – Supreme Court of India
  
  Ratio: The High Court had relied on this case to hold that the provisions of Section 45 of the PMLA do not apply to anticipatory bail proceedings. However, this interpretation was later clarified.
• The Asst. Director Enforcement Directorate vs. Dr. V.C. Mohan; (2022 SCC OnLine SC 452) – Supreme Court of India
  
  Ratio: This case clarified that the rigors of Section 45 of the PMLA apply to anticipatory bail applications, overruling the interpretation of Nikesh Tarachand Shah.
• P. Chidambaram vs. Directorate of Enforcement; (2019) 9 SCC 24 – Supreme Court of India
  
  Ratio: The Court reiterated that in cases of economic offenses, which have an impact on society, the Court must be slow in exercising discretion under Section 438 of the CrPC.
• Y.S. Jagan Mohan Reddy vs. CBI; (2013) 7 SCC 439 – Supreme Court of India
  
  Ratio: The Court highlighted the need for a cautious approach in granting bail for economic offenses.

Legal Provisions Considered by the Court:

• Section 3 of the Prevention of Money Laundering Act, 2002
  
  Brief: Defines the offense of money laundering.
• Section 4 of the Prevention of Money Laundering Act, 2002
  
  Brief: Prescribes the punishment for money laundering.
• Section 45 of the Prevention of Money Laundering Act, 2002
  
  Brief: Specifies the conditions for granting bail in PMLA cases.
• Section 438 of the Code of Criminal Procedure, 1973
  
  Brief: Provides for anticipatory bail.

Authority Table

Judgment

The Supreme Court allowed the appeal filed by the Directorate of Enforcement (ED) and set aside the anticipatory bail granted to M. Gopal Reddy by the High Court. The Court held that the High Court had erred in its interpretation of the law and had not considered the seriousness of the offenses under the Prevention of Money Laundering Act, 2002 (PMLA).

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 emphasized that the decision in Nikesh Tarachand Shah was limited to the context of the specific provision that was struck down and did not mean that Section 45 of the PMLA was inapplicable to anticipatory bail.

✓ The Asst. Director Enforcement Directorate vs. Dr. V.C. Mohan; (2022 SCC OnLine SC 452): The Supreme Court followed this judgment, reiterating that the rigors of Section 45 of the PMLA do apply to anticipatory bail applications.

✓ P. Chidambaram vs. Directorate of Enforcement; (2019) 9 SCC 24: The Supreme Court relied on this case to emphasize that in cases of economic offenses, the court must be very slow in exercising its discretion under Section 438 of the CrPC.

✓ Y.S. Jagan Mohan Reddy vs. CBI; (2013) 7 SCC 439: The Supreme Court cited this case to support the view that economic offenses require a cautious approach in granting bail.

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, particularly Section 45. The Court emphasized that the High Court had failed to appreciate the seriousness of money laundering offenses and had misinterpreted the earlier judgment in Nikesh Tarachand Shah. The following points weighed heavily in the mind of the Court:

• The misinterpretation of Nikesh Tarachand Shah by the High Court, which led to the incorrect application of law.
• The clarification provided in Dr. V.C. Mohan, which explicitly stated that Section 45 of the PMLA applies to anticipatory bail.
• The serious nature of money laundering offenses and their impact on society.
• The need for thorough investigation, especially in cases involving high-ranking officials.
• The evidence of a nexus between the respondent and the alleged perpetrators of the scam.
• The respondent’s non-cooperative behavior during the investigation.

The Court’s reasoning was driven by the necessity to maintain the integrity of the legal framework designed to combat money laundering, which requires stringent conditions for bail.

Sentiment Analysis Table

Fact:Law Ratio Table

Logical Reasoning

Key Takeaways

✓ The restrictions on granting bail under Section 45 of the Prevention of Money Laundering Act, 2002, apply to anticipatory bail applications as well.

✓ Courts must consider the seriousness of money laundering offenses when deciding on anticipatory bail applications.

✓ The judgment in Nikesh Tarachand Shah vs. Union of India has been clarified and cannot be interpreted to mean that Section 45 of the PMLA is inapplicable to anticipatory bail.

✓ Economic offenses require a cautious approach in granting anticipatory bail due to their impact on society.

✓ Individuals accused of money laundering must cooperate with investigations, as non-cooperation can negatively impact their bail prospects.

Directions

The Supreme Court set aside the order of the High Court granting anticipatory bail to M. Gopal Reddy. The Court directed that the investigation against M. Gopal Reddy be continued and that the High Court’s order be set aside.