Supreme Court Upholds Denial of Bail in Money Laundering Case: Satyendar Kumar Jain vs. Directorate of Enforcement (2024) INSC 217

Date of the Judgment: March 18, 2024

Citation: 2024 INSC 217

Judges: Bela M. Trivedi, J., Pankaj Mithal, J.

Can individuals accused of money laundering be granted bail easily? The Supreme Court of India recently addressed this critical question in a case involving Satyendar Kumar Jain and others, who were accused of money laundering. The court examined whether the accused met the stringent conditions for bail under the Prevention of Money Laundering Act (PMLA). The judgment highlights the complexities of financial crimes and the rigorous standards required for bail in such cases.

The Supreme Court upheld the High Court’s decision to deny bail to the appellants, emphasizing the seriousness of money laundering offenses and the need for strict adherence to the legal framework. The bench consisted of Justices Bela M. Trivedi and Pankaj Mithal, with Justice Bela M. Trivedi authoring the judgment.

Case Background

The case began with an FIR registered by the Central Bureau of Investigation (CBI) on August 24, 2017, against Satyendar Kumar Jain, then a Minister in the Government of the National Capital Territory of Delhi, and others. The FIR alleged offences under Section 109 of the Indian Penal Code (IPC) and Section 13(2) read with Section 13(1)(e) of the Prevention of Corruption Act, 1988. This was based on a preliminary inquiry that suggested Jain had amassed disproportionate assets.

Following the CBI’s investigation, a charge sheet was filed on December 3, 2018, against Satyendar Kumar Jain, his wife Poonam Jain, and several others, including Ajit Prasad Jain, Sunil Kumar Jain, Vaibhav Jain, and Ankush Jain.

Given that the offences under the Prevention of Corruption Act were scheduled offences under the PMLA, the Directorate of Enforcement (ED) registered an Enforcement Case Information Report (ECIR) on August 30, 2017. The ED’s investigation focused on the alleged money laundering activities of Satyendar Kumar Jain, who was accused of laundering tainted cash through Kolkata-based shell companies between February 14, 2015, and May 31, 2017, while serving as a Minister.

The ED filed a Prosecution Complaint on July 27, 2022, against Satyendar Kumar Jain and others, seeking cognizance of money laundering offences under Section 3, punishable under Section 4 of the PMLA. Satyendar Kumar Jain was arrested on May 30, 2022, and Vaibhav Jain and Ankush Jain were arrested on June 30, 2022.

The ED alleged that Satyendar Kumar Jain conceptualized a scheme of accommodation entries against cash, using his associates and family members to launder money through shell companies. The total proceeds of crime were estimated at ₹4.81 crore, which were allegedly acquired while holding public office.

Timeline

Course of Proceedings

The Special Judge (PC Act) (CBI) -23 (MPs/MLAs cases) rejected the bail applications of all the appellants through separate detailed orders dated November 17, 2022. Subsequently, the High Court of Delhi also rejected their bail applications on April 6, 2023. These rejections led to the appellants filing appeals before the Supreme Court.

Legal Framework

The Supreme Court referred to several key provisions of the PMLA to evaluate the case. These included:

• Section 2(1)(fa) of the PMLA defines “beneficial owner” as an individual who ultimately owns or controls a client of a reporting entity or the person on whose behalf a transaction is being conducted, including a person who exercises ultimate effective control over a juridical person.
• Section 2(1)(p) of the PMLA states that “money-laundering” has the meaning assigned to it in section 3 of the PMLA.
• Section 2(1)(u) of the PMLA defines “proceeds of crime” as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence, or the value of any such property. It also clarifies that proceeds of crime include property derived not only from the scheduled offence but also any property derived from any criminal activity related to the scheduled offence.
• Section 2(1)(v) of the PMLA defines “property” as any property or assets of every description, whether corporeal or incorporeal, movable or immovable, tangible or intangible, including deeds and instruments evidencing title to, or interest in, such property or assets.
• Section 3 of the PMLA defines the offence of money laundering as any direct or indirect involvement 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.
  “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.”

Arguments

The arguments presented by both sides were extensive. Here’s a breakdown:

Submissions on behalf of Satyendar Kumar Jain:

• The appellant was already granted bail in the predicate offence registered by the CBI.
• The arrest by the ED was almost five years after the registration of the ECIR, despite the appellant cooperating with the ED.
• No shares of companies were acquired by the appellant within the check period, and assets held by the company cannot be attributed to its shareholders.
• Even if accommodation entries are attributed to the appellant through his wife’s shareholdings, it would be less than ₹1 crore, entitling him to bail under Section 45 of the PMLA.
• There is a discrepancy in the amount of proceeds of crime calculated by the ED (₹4.81 crore) and the amount mentioned in the CBI chargesheet (₹1.62 crore).
• The appellant was not a director nor signed any financial documents during the check period and had resigned from directorship two years before the alleged offence.
• The appellant’s role was limited to architectural expertise, as per an MOU seized from Vaibhav Jain’s locker.
• The alleged proceeds of crime were directed to the families of Vaibhav Jain and Ankush Jain.
• The appellant was not in possession of any proceeds of crime, and thus could not be held in constructive possession.
• There was no evidence to show that the appellant provided cash to Kolkata companies.
• The Kolkata companies and persons providing accommodation entries were not made accused by the ED.
• The allegation that the appellant acquired assets worth ₹4.81 crore was not made by the CBI in the FIR.
• The assumption of proceeds of crime based on accommodation entries is contrary to the concept of proceeds of crime as explained in Vijay Madanlal Choudhary vs. Union of India [2022 SCC OnLine SC 929].
• The Prosecution Complaint is silent on when the scheduled offence was committed and how the proceeds of crime were laundered.
• The Income Disclosure Scheme (IDS) declarations made by Vaibhav Jain and Ankush Jain were rejected, and no finding was given that the amount belonged to the appellant.
• The appellant’s letter dated June 27, 2018, denied being the beneficial owner, and he only requested adjustment of tax paid by Vaibhav Jain and Ankush Jain.
• The court should not conduct a mini-trial and should consider only the broad probability of the matter.
• The appellant is not a flight risk, and there is no risk of tampering with documents or witnesses, and he is entitled to bail due to his health condition.

Submissions on behalf of the Directorate of Enforcement (ED):

• Satyendar Kumar Jain acquired disproportionate assets between 2015 and 2017 while serving as a Minister.
• Accommodation entries of about ₹4.81 crore were received in companies beneficially owned by the appellant.
• Statements from Rajendra Bansal, Jivendra Mishra, and J.P. Mohta revealed that Rajendra Bansal arranged accommodation entries for the appellant’s companies.
• Vaibhav Jain stated that the cash was provided by the appellant, and explained the modus operandi of transferring cash from Delhi to Kolkata through Hawala operators.
• The appellant requested that the income tax paid by Vaibhav Jain and Ankush Jain under IDS, 2016 be adjusted against the demands raised in his individual assessments, establishing that the IDS declarations were made for the appellant.
• The Special Court had taken cognizance of the PMLA case and found prima facie evidence of the appellant’s involvement.
• Satyendar Kumar Jain was the main person behind the bogus shell companies, which never did any real business.
• The lifting of the corporate veil is justified when corporate structures are used for committing fraud or economic offences.
• The bogus nature of IDS declarations was substantiated by the fact that the entire amount was split between Vaibhav Jain and Ankush Jain.
• The disproportionate pecuniary resources earned by the appellant were used as accommodation entries.
• Rajendra Bansal and Jivendra Mishra expressed fear that Satyendar Kumar Jain, being an influential politician, would create danger to them.
• The mandatory twin conditions of Section 45 of PMLA have not been satisfied.

Submissions on behalf of Ankush Jain and Vaibhav Jain:

• The scheduled offence is a period-specific offence, and the offence of money laundering can be initiated only after the scheduled offence is accomplished.
• The offence of money laundering against the appellants is attributed to their act of filing IDS on 27.09.2016, before the end of the check period.
• The act of declaring IDS cannot be considered as assisting Satyendar Jain in committing the offence of money laundering.
• The IDS filed was declared void by the Income Tax authorities, and therefore cannot be the basis for charges under Section 3 of PMLA.
• It is not clear which IDS declaration led to the assistance of Satyendar Jain.
• The generation of proceeds of crime is not an offence under Section 3 of PMLA, and the offence could be committed only after the accomplishment of the Scheduled Offence.
• The control of the entire records of the companies was with the appellants, and Satyendar Jain had nothing to do with the companies after 2013.
• The scheduled offence does not allege conspiracy.
• The appellants are in custody since June 30, 2022, except for the period when they were released on interim bail.
• The appellants have not violated any conditions imposed by the Court when on interim bail.

Submissions on behalf of the Directorate of Enforcement (ED) against Ankush Jain and Vaibhav Jain:

• Ankush Jain and Vaibhav Jain were actively involved in the commission of the offence of money laundering.
• Ankush Jain was the Director of M/s. Mangalayatan Projects Pvt. Ltd., which received proceeds of crime amounting to ₹1.90 crore.
• Vaibhav Jain was the Director of M/s. Paryas Infosolution Pvt. Ltd., which received proceeds of crime amounting to ₹69.00 lakh.
• Both appellants made declarations under the IDS, 2016 to shield Satyendar Kumar Jain.
• Both appellants prepared backdated documents to show their IDS declarations as genuine.
• The income sought to be disclosed belonged to Satyendar Jain, and the IDS declarations were rejected on the grounds of misrepresentation and suppression of facts.
• The declarations were held void under Section 193 of the Finance Act, 2016, but the act of making such declarations is relevant for the purposes of the offence under the PMLA.
• Section 3 of PMLA ropes in any person who may or may not have any role to play in the scheduled offence but has directly or indirectly attempted to indulge or knowingly assisted in the proceeds of crime.
• The money laundering need not commence only after the check period.
• The amount totalling ₹4.60 crore was received in companies controlled by the appellants during the check period.
• The cash acquired by Satyendar Jain was given to Kolkata entry operators for accommodation entries.
• The amount of ₹4.81 crore received during the check period was the proceeds of crime in the hands of Satyendar Jain.
• The shares in the companies were purchased by Kolkata based bogus companies as entries in lieu of cash, and Satyendar Jain was the beneficial owner of the shares.

The innovativeness of the arguments was particularly notable in the appellants’ attempts to distinguish between the predicate offence and the money laundering offence, arguing that the latter could not precede the former. The ED, on the other hand, innovatively argued for the lifting of the corporate veil to establish the beneficial ownership of Satyendar Kumar Jain.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the court addressed the following key issues based on the arguments presented:

• Whether the appellants satisfied the twin conditions laid down in Section 45 of the PMLA for grant of bail.
• Whether the proceeds of crime were correctly identified and attributed to the appellants.
• Whether the appellants were involved in the offence of money laundering as defined under Section 3 of the PMLA.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

The Court also considered the following legal provisions:

• Section 109 of the Indian Penal Code (IPC): Deals with abetment of an offence.
• Section 13(2) read with Section 13(1)(e) of the Prevention of Corruption Act, 1988: Pertains to criminal misconduct by a public servant, including possession of disproportionate assets.
• Section 3 of the Prevention of Money Laundering Act, 2002 (PMLA): Defines the offence of money laundering.
• Section 4 of the PMLA: Prescribes the punishment for money laundering.
• Section 45 of the PMLA: Lays down the conditions for granting bail in cases of money laundering.
• Section 50 of the PMLA: Empowers authorities to summon individuals for inquiries and recording statements.
• Section 183 of the Finance Act, 2016: Relates to the Income Declaration Scheme (IDS).
• Section 193 of the Finance Act, 2016: Deals with the consequences of false declarations under the IDS.
• Section 2(1)(fa) of the PMLA: Defines “beneficial owner”.
• Section 2(1)(p) of the PMLA: Defines “money laundering”.
• Section 2(1)(u) of the PMLA: Defines “proceeds of crime”.
• Section 2(1)(v) of the PMLA: Defines “property”.

Judgment

The Supreme Court dismissed all the appeals, upholding the High Court’s decision to deny bail to the appellants. The court found that the appellants had failed to meet the twin conditions for bail under Section 45 of the PMLA.

Treatment of Submissions

How Each Authority was Viewed by the Court

The authorities were viewed as follows:

• Gautam Kundu vs. Directorate of Enforcement [(2015) 16 SCC 1]*: The Supreme Court followed this case, reiterating that the conditions under Section 45 of the PMLA are mandatory and must be complied with.
• Vijay Madanlal Choudhary vs. Union of India [2022 SCC OnLine SC 929]*: The Supreme Court followed this case, upholding the validity of Section 45 of the PMLA and emphasizing the stringent measures to combat money laundering. The court also clarified the definition and scope of “proceeds of crime”.
• Rohit Tandon vs. Directorate of Enforcement [(2018) 11 SCC 46]*: The Supreme Court followed this case, holding that statements of witnesses recorded by the ED under Section 50 are admissible in evidence.
• Karnail Singh vs. State of Haryana [(1995) Supp (3) SCC 376]*: This case was referred to by the appellants to understand the meaning of “void” in the context of the Income Disclosure Scheme. The Court distinguished the meaning of “void” in the context of the Income Tax Act from the meaning under the PMLA.
• Neelu Chopra and Another vs. Bharti [(2009) 10 SCC 184]*: This case was referred to in the context of vague allegations. The Court found that the allegations against the appellants were not vague.
• Myakala Dharmarajan & Ors. Vs. State of Telangana & Anr. [(2020) 2 SCC 743]*: This case was referred to in the context of vague allegations. The Court found that the allegations against the appellants were not vague.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following:

• The seriousness of the offence of money laundering and the need for stringent measures to combat it.
• The failure of the appellants to satisfy the twin conditions for bail under Section 45 of the PMLA.
• The evidence presented by the ED, including witness statements and documents, which prima facie showed the appellants’ involvement in money laundering.
• The fact that Satyendar Kumar Jain was the conceptualizer, initiator, and supervisor of the accommodation entries, and that he was the beneficial owner of the companies involved.
• The fact that Ankush Jain and Vaibhav Jain assisted Satyendar Kumar Jain by making false declarations under the IDS.
• The lifting of the corporate veil was justified in this case to identify the true beneficiaries of the transactions.

Ratio Decidendi

The key legal principles established by the Supreme Court in this judgment are:

• The conditions for granting bail under Section 45 of the PMLA are mandatory and must be strictly complied with.
• The offence of money laundering is a serious economic offence that requires a stringent approach.
• The definition of “proceeds of crime” under the PMLA includes not only the property derived from the scheduled offence but also any property derived from any criminal activity related to the scheduled offence.
• The corporate veil can be lifted when corporate structures are used to commit fraud or economic offences, in order to identify the true beneficiaries of the transactions.
• Statements recorded under Section 50 of the PMLA are admissible in evidence.
• The act of making false declarations under the IDS, even if those declarations are later declared void, can be relevant for the purposes of the offence of money laundering under the PMLA.

Ratio Table

Obiter Dicta

While the main focus of the judgment was on the denial of bail, the Supreme Court also made the following observations that are not essential to the decision but provide additional context and guidance:

• The court emphasized the need for a strict approach in cases of money laundering due to its potential impact on the economy and national security.
• The court highlighted the importance of cooperation from all stakeholders in combating financial crimes, including the government, law enforcement agencies, and the judiciary.
• The court noted the increasing sophistication of financial crimes and the need for continuous improvement in investigative techniques and legal frameworks.

Flowchart of Proceedings

Conclusion

The Supreme Court’s judgment in the Satyendar Kumar Jain case underscores the stringent approach adopted by the Indian judiciary towards money laundering offenses. The court’s decision to uphold the denial of bail, based on the stringent conditions of Section 45 of the PMLA, reflects the seriousness with which such offenses are viewed. The case also clarifies the scope of “proceeds of crime” and the circumstances under which the corporate veil can be lifted to identify the true beneficiaries of financial transactions. This judgment will likely serve as a significant precedent for future money laundering cases, emphasizing the need for strict compliance with the law and a robust approach to combating financial crimes.