Bail Under S. 436A CrPC Granted in PMLA Case Despite Serious Allegations, Citing Uncertain Trial Delay: Bombay HC

Wadhawans Granted Bail in PMC Bank PMLA Case, Bombay HC Cites Trial Delay Under S. 436A CrPC

Mumbai: In a significant development concerning the Punjab and Maharashtra Co-operative Bank (PMC Bank) scam, the Bombay High Court on April 5, 2024, granted bail to Sarang Wadhawan and Rakesh Kumar Wadhawan , promoters of HDIL, who are accused in a money laundering case related to the alleged fraud. Justice S. M.Modak allowed their bail applications primarily on the ground that they had undergone more than half of the maximum prescribed sentence under the Prevention of Money-Laundering Act (PMLA), 2002, and the commencement and completion of the trial remained uncertain.

The court's decision hinged on the application of Section 436A of the Code of Criminal Procedure (CrPC), which provides for the release of an accused person who has been in detention for half of the maximum period of imprisonment specified for the offence.

Case Background

The case stems from an Enforcement Case Information Report (ECIR) lodged by the Directorate of Enforcement (ED) in October 2019, following a 'scheduled offence' registered with Bhandup Police Station (later transferred to the Economic Offences Wing - EOW) against 38 persons, including the Wadhawans, for offences like cheating, forgery, and criminal conspiracy.

The ED alleged that the Wadhawans, as promoters and beneficial owners of HDIL Group, availed loans amounting to Rs. 6117.93 Crores from PMC Bank between 2008 and 2019. This amount, according to the ED, constitutes 'proceeds of crime' derived from the 'scheduled offence'.

Both Sarang (Accused No. 2) and Rakesh Kumar Wadhawan (Accused No. 1) were arrested on October 17, 2019. The ED filed a complaint under Section 3 read with Section 4 of the PMLA Act before the Special PMLA Court on December 16, 2019. The maximum punishment under Section 4 of the PMLA Act is 7 years imprisonment. Having been arrested on October 17, 2019, both applicants had spent over three and a half years in custody, fulfilling the primary condition of Section 436A.

Their previous bail applications before the Special Court were rejected on October 4, 2023, leading them to approach the High Court.

Arguments Presented

Mr. Aabad Ponda, Senior Advocate for Sarang Wadhawan , and Mr. Harshad Nimbalkar and Mr. Hrishikesh Chitaley for Rakesh Kumar Wadhawan , argued that the applicants were entitled to statutory bail under Section 436A CrPC as they had undergone more than half the maximum sentence. They contended that filing various applications during detention, aimed at protecting their rights, did not constitute deliberately delaying the trial and thus should not disqualify them under the Explanation to Section 436A.

Conversely, Mr. Hitesh S. Venegavkar , appearing for the ED, vehemently opposed the bail. He argued that the right under Section 436A is not absolute and must be considered in light of the seriousness of the allegations and the severity of the punishment. He emphasized that the applicants' conduct, including filing numerous applications, had caused significant delays, as noted by the Special Court, thereby disentitling them from the benefit of Section 436A. Mr. Venegavkar highlighted the enormous amount of money involved (over Rs. 6117 Crore) and the potential threat to the financial system.

Court's Analysis and Findings

Justice Modak , after hearing arguments and perusing the record, including the Special Court's order and case 'roznamas' (daily proceedings), meticulously examined the application of Section 436A in the context of a PMLA offence.

The court confirmed that the applicants had met the statutory requirements of Section 436A, having been in detention for over three and a half years, which is half of the maximum 7-year sentence for the alleged offence under Section 4 of PMLA.

Addressing the ED's argument about the applicants causing delay, the court acknowledged the Special Judge's finding but noted a lack of detailed reasoning attributing specific delays to the applicants. Justice Modak observed that steps taken by an undertrial prisoner, such as filing applications for jail facilities, health concerns, or even bail applications, are often legitimate exercises of their rights and cannot automatically be considered actions taken solely for delaying the trial, "unless some malafide is shown by the Enforcement Department". The court found it difficult to pinpoint the exact reasons for adjournments and attributed delays solely to the applicants.

Crucially, the court delved into the overall status and likely timeline of the trial. It noted that despite the ED filing a 'draft charge' in November 2023, the formal process of framing charges was still pending. The court also considered the peculiar situation under Section 44 of the PMLA Act, where the trial for the 'scheduled offence' (being conducted by the EOW) and the PMLA offence are to be tried by the same Special Court, but independently. While the PMLA Act states that the Special Court's jurisdiction is not dependent on the outcome of the scheduled offence trial, past judicial interpretations suggest that the PMLA trial might effectively wait for the scheduled offence trial's conclusion.

Citing precedents, including the Supreme Court's observations in Vijay Madanlal Choudhary v. Union of India and Satender Kumar Antil v. CBI , the court reiterated that Section 436A is a beneficial provision and bail cannot be denied merely because the allegations are serious. The court quoted Satender Kumar Antil , emphasizing that "It is not advisable on the part of the court to categorise all the offences into one group and deny bail on that basis."

Justice Modak noted that the large volume of documents, the number of accused (38), and the pre-charge formalities would inherently take significant time. After reviewing confidential statistics regarding the pendency of PMLA and scheduled offence cases before the Special Court, the court observed that the "future of trial of this case, will be in doldrum" and that it was "uncertain when the trial will start".

The judgment explicitly stated: "Under such situation can we detain the Applicants behind bar for a period which no one can definitely predict. EOW through learned APP and ED through their Advocates have not given any assurance to the Court about likelihood of completion of the trial in near future and how much time it will take for completion."

Balancing the rights of the accused to liberty against the seriousness of the allegations and the state's right to prosecute, the court concluded that in a scenario of unpredictable and potentially long trial delay, continued detention was not justified, even given the serious nature of the allegations. The court found no alternative but to grant bail based on the ground of having undergone more than half of the maximum sentence coupled with the uncertainty of the trial.

The Decision

Accordingly, the Bombay High Court allowed both bail applications. Sarang Wadhawan and Rakesh Kumar Wadhawan were ordered to be released on bail upon furnishing a Personal Bond and Surety Bond of Rs. 5,00,000/- (Rupees Five Lakhs Only) each.

The court imposed several conditions, including directing them not to leave the State of Maharashtra without prior permission of the trial court, not to threaten or allure prosecution witnesses, to attend the trial court punctually, and to surrender their passports to the ED/EOW if not already surrendered.

The court rejected the request for cash bail, emphasizing the purpose of a heavy surety amount is to secure the presence of the accused during the trial.

General Directions

Recognizing the systemic issues contributing to trial delays, Justice Modak also issued general directions to the Registrar General of the High Court. These directions request the Registrar General to take stock of the situation at the City Civil Court concerning the pendency of PMLA and scheduled offence cases, the availability of staff for document scrutiny, and the number of judges assigned to such matters. The aim is to potentially address these administrative challenges and expedite the trial process for such complex cases in the future.

The judgment underscores the principle that while serious allegations and the accused's conduct are relevant, indefinite pre-trial detention is impermissible, particularly when statutory provisions like Section 436A CrPC are met and the trial timeline is uncertain, thus reaffirming the importance of the right to a speedy trial.

The bail applications and pending interim applications were disposed of.