Non-Compliance with S.19 PMLA & Reliance on Inadmissible Co-Accused Statements for Arrest Warrants Bail: Madhya Pradesh HC - 2024-11-19

MP High Court Grants Bail in PMLA Case, Cites ED's Non-Compliance with Arrest Safeguards

Indore , Madhya Pradesh – The High Court of Madhya Pradesh at Indore , on November 19, 2024, granted bail to Mr. Asif Hanif Thara in a money laundering case, emphasizing that non-compliance by the Enforcement Directorate (ED) with the mandatory arrest procedures under Section 19 of the Prevention of Money Laundering Act, 2002 (PMLA), and reliance on prima facie inadmissible evidence, are crucial factors in considering bail. Hon'ble Shri Justice Prakash ChandraGupta presided over the matter.

Case Background: Allegations of Large-Scale Money Laundering

The Enforcement Directorate had registered an ECIR (No. ECIR/STF/15/2023) against Mr. Thara and others, alleging offences under Sections 3/4 of the PMLA. This stemmed from an initial FIR (No. 421/2023) registered at P.S. Morar, Gwalior, for cheating (Sec 417, 420 IPC) and criminal conspiracy (Sec 120-B IPC).

The prosecution alleged that Mr. Thara was the mastermind behind a scheme involving nine benami firms. Between July 2014 and June 2023, he allegedly fraudulently obtained import authorizations for poppy seeds from China and Turkey by misrepresenting facts and circumventing government guidelines. The ED claimed he aimed to acquire a maximum share of the country's import quota, causing wrongful loss to the government exchequer. The total value of poppy seeds fraudulently imported was alleged to be Rs. 141.8 Crores, considered proceeds of crime.

Applicant's Submissions: Procedural Lapses by ED

Shri Sidhharth Agrawal, learned Senior Advocate for Mr. Thara , argued primarily on procedural grounds:

Non-compliance with Section 19 PMLA: Reason s for arrest were allegedly not properly recorded and were based on inadmissible statements of co-accused.

Non-compliance with Section 50 PMLA: The ED purportedly failed to collect independent evidence and relied solely on co-accused statements. No information was sought from the licensing authority that issued import licenses.

Illegal Arrest: The applicant was neither summoned nor was his statement recorded before his arrest on October 3, 2024. The ED did not seek his custody for interrogation upon production before the remand court.

Inapplicability of Rigorous Bail Conditions: The stringent twin conditions for bail under Section 45 PMLA would not apply if mandatory provisions like Sections 19 and 50 were not adhered to.

Inadmissible Statements: Statements of the applicant recorded on October 27 and 28, 2024, while he was in judicial custody, were contended to be inadmissible.

ED's Stance: Sufficient Evidence of Money Laundering

Shri Himanshu Joshi, learned Deputy Solicitor General for the ED, contended:

The mandatory conditions under Section 45 PMLA must be satisfied for bail.

Sufficient evidence allegedly showed the applicant's involvement in money laundering.

However, the ED counsel fairly conceded that the applicant was neither called nor his statement recorded before arrest.

It was also admitted that the conclusion of guilt was based on statements of co-accused/suspected persons, and no information had been called from the licensing authority, nor were statements of other witnesses recorded.

Crucially, the ED submitted that no further custodial interrogation of the applicant was required.

Court's Reason ing: Upholding Procedural Safeguards

Justice Gupta , after perusing the records and hearing counsel, extensively relied on Supreme Court precedents to underscore the importance of procedural compliance under PMLA.

On Non-Compliance with Section 19 PMLA: The Court referred to Pushpendra Singh Vs. Directorate of Enforcement , where a coordinate bench held that " Reason to believe is sin qua non for exercising power under Section 19 by authorized officer & under Section 45 by the Court." If Section 19 is not complied with, the rigors of Section 45 may be reassessed. The judgment noted: > "In the instant case before the arrest of the applicant, he was neither summoned, nor his statement was recorded by the investigating authorities... Opinion formed by the ED u/s 19 of the PMLA with respect to the guilt of the applicant, is based upon the statement of the co-accused person which is prima facie inadmissible. Therefore, it appears that in this case provisions of section 19 of the PMLA has not been complied with."

On Admissibility of Evidence: Citing Prem Prakash Vs. Union of India , the Court observed that statements under Section 50 PMLA to the same investigating agency by an accused already in custody are inadmissible. Further, a co-accused's statement "will not have the character of substantive evidence." Referring to Arvind Kejriwal Vs. Directorate of Enforcement , the Court highlighted that the decision to arrest "should be rational, fair and as per law," and guilt for arrest purposes must be based on admissible evidence, not just "material in possession."

Impact of Non-Compliance: The Court relied on V. Senthil Balaji V State , which held that any non-compliance with the mandate under Section 19 PMLA "would enure to benefit of the person arrested."

Given that the applicant was not summoned before arrest, the ED's opinion of guilt was based on prima facie inadmissible co-accused statements, and no further custodial interrogation was required, the Court found it a fit case for bail.

The Decision: Bail Granted

The High Court allowed the bail application, directing Mr. Asif Hanif Thara to be released upon furnishing a personal bond of Rs. 5,00,000/- with two sureties of the like amount. Conditions for bail include: * Attending trial court as required. * Cooperating with the investigation. * Not committing similar offences. * Not tampering with evidence or influencing witnesses. * Not leaving India without prior permission of the trial court and surrendering his passport.

This order underscores the judiciary's insistence on strict adherence to procedural safeguards by investigative agencies, especially under stringent laws like the PMLA, and clarifies the evidentiary limitations of co-accused statements in forming the basis for arrest.