Surendera Kumar Jain vs Enforcement Directorate Delhi Zonel ... on 20 September, 2017

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Delhi High Court

Surendera Kumar Jain vs Enforcement Directorate Delhi Zonel ... on 20 September, 2017

1. By way of the above captioned applications, i.e. BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017, the present petitioners, i.e. (1) Virendra Jain and (2) Surendra Kumar Jain, seek regular bail under Section 439 Cr.P.C. in the case ECIR/01/DLZO-II/2017 dated 11.02.2017, under Sections 3 & 4 of Prevention of Money Laundering Act, 2002 (herein after referred to as PMLA).

2. The brief facts stated are that vide order dated 28.10.2013 the Ministry of Corporate Affairs ordered an investigation by the Serious Fraud Investigation Officer (SFIO) into the affairs of various companies. Pursuant to that an investigation was conducted by the SFIO and on 31.03.2016 an investigation report under Section 241 of the Companies Act, 1956 was filled. Thereafter, on the basis of the aforesaid investigation report, on 29.11.2016 a Criminal Complaint No. 57463 of 2016 was filed by the SFIO against various accused persons (including the petitioners herein) for violation of the provisions under Sections 233/628 read with 211/240 (3) of the Companies Act and under Sections 420/468/477-A/120-B IPC before the Court of learned Additional Chief Metropolitan Magistrate (Central) Special Acts, Tis Hazari Courts, Delhi.

BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 2 of 34

3. Subsequently, on 11.02.2017 the respondent/department on the basis of the aforesaid complaint registered a case ECIR/01/DLZO-II/2017, under Sections 3 & 4 of Prevention of Money Laundering Act, 2002 against the accused persons (including the petitioners herein). It is alleged in the said complaint that during the period of 2004 to 2010 the accused persons/petitioners entered into a criminal conspiracy for the object of providing accommodation entries to the various beneficiary companies with an aim of converting their unaccounted money through legitimate transactions by charging commission with the assistance of mediators and in this process companies and firms were used as special purpose vehicle for camouflaging the laundering. Further, the Income Tax Officer vide assessment order dated 28.03.2013 has recorded a finding that M/s Jagat Projects Ltd. had laundering its unaccounted income through a set of companies controlled by the accused/petitioners in the guise of share subscription money at a huge premium to the tune of Rs. 64.70 Crore during the financial year 2008-09, with the help of a professional Chartered Accountant Rajesh Aggarwal. The entire share subscription of Rs. 64.70 Crore has been held to be unexplained cash credit under Section 68 of the Income Tax Act, 1961 in the hands of M/s Jagat Projects Ltd. for the assessment year 2009- 10 and the commission payment of Rs. 1,16,46,000/- @ 1.80% on the total accommodation entries of Rs. 64.70 Crore made to the accused/petitioners for securing accommodation entries has BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 3 of 34 been an unexplained expenses incurred during the assessment year 2009-10. It was further alleged that the accused/petitioners dishonestly and fraudulently inflated the balance sheet of the companies by fictitiously increasing its share capital and investment through rotation of cheques in the bank accounts while in fact actual value of investment in the group companies was nil. Thus, the accused/petitioners dishonestly and fraudulently made false balance sheets and thereby committed the forgery for the purpose of cheating, i.e. offences punishable under Sections 120-B/420 IPC which are Schedule Offences of Prevention of Money Laundering Act, 2002.

4. On 13.02.2017 Seizure Memo/Panchnama was prepared by the officers of the respondent/department and thereafter, summons dated 01.03.2017, 03.03.2017 and 16.03.2017 were issued to the petitioner- Virendra Jain and summons dated 13.02.2017, 14.02.2017, 27.02.2017, 03.03.2017, 15.03.2017 and 16.03.2017 were issued to the petitioner- Surendra Kumar Jain for their appearance before the Assistant Director of the respondent/department to give statements under Section 50 of the PMLA.

5. Consequently, on 20.03.2017 the petitioners were arrested by the officers of the respondent/department. In the meanwhile the petitioners moved bail application before the Court of Additional Sessions Judge, Patiala House Courts, New Delhi and vide order dated 02.05.2017 the learned ASJ dismissed the bail application of the petitioners.

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6. Thereafter, on 18.05.2017 the respondent/department through its Assistant Director filed a complaint under Section 45 of Prevention of Money Laundering Act, 2002 for commission of offences of money laundering as defined under Section 3 and punishable under Section 4 of Prevention of Money Laundering Act, 2002 against the petitioners.

7. The present petitioners, i.e. (1) Virendra Jain and (2) Surendra Kumar Jain, have filed the present applications assailing various actions taken by the respondent/department in arresting the petitioners and calling them to appear before them without following the mandate of law as well as procedure established by law in violation of their Fundamental Rights as guaranteed under Article 21 of the Constitution of India.

8. The learned senior counsel appearing on behalf of the petitioners submits that the matter, inter alia, originated from an Income Tax raid conducted on 14.09.2010 leading to passing of an Assessment Order dated 28.03.2013 by the Income Tax Assessing Officer. The Assessment Order was challenged before the CIT (Appeals) and subsequently before the Income Tax Appellate Tribunal. The Tribunal had remanded back the entire matter while observing that there was violation of principles of natural justice and petitioners should be given adequate opportunity and confronted with all material/evidence/statements.

9. The learned senior counsel for the petitioners has further submitted that the entire case is based upon certain documents BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 5 of 34 which are all a matter of record. He has further submitted that it is a complex analysis of transactions and the petitioners may well have a case to dislodge the entire accusations set up against them.

10. The learned senior counsel for the petitioners has further submitted that in response to the Summons issued by the respondent/Enforcement Directorate, petitioners had duly appeared and co-operated on several occasions. He has further submitted that the arrest of the petitioners, therefore, is grossly actuated with malice and is in violation of the spirit of Section 19 of PMLA which contemplates three necessary pre-requisites before effecting arrest viz. material in possession; reasons to believe in writing to be recorded in writing & reasons to believe that the person sought to be arrested is guilty of money laundering. He has further submitted that such pre-requisites have not been fulfilled and the petitioners' liberty has been invaded merely on whims, fancies, prejudices and beliefs.

11. The learned senior counsel for the petitioners has further submitted that it is an undisputed fact that no PMLA proceedings can come into existence unless there is a Scheduled Offence wherefrom any 'proceeds of crime' are derived or obtained and are projected as untainted. He has submitted that in the instant case, the Scheduled Offence is a complaint filed by SFIO against the petitioners on 29.11.2016, inter alia, invoking Sections 420/120-B IPC, however, no cognizance had been taken by any Court when the ECIR was registered. He has BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 6 of 34 further submitted that even on the date of filing of Prosecution Complaint, no cognizance was taken in the Scheduled Offence by any competent Court and in these circumstances, entire proceedings are without any foundation inasmuch as it is a sine qua non that the trial in both the cases have to go simultaneously in terms of Section 44 of PMLA. Therefore, law does not contemplate even initiation of proceedings under PMLA without the Scheduled Offence being in existence. He has further submitted that mere filing of a complaint does not necessarily lead to an inference that either a cognizance has been taken or the offence has seen the light of the day as understood in ordinary legal parlance.

12. The learned senior counsel for the petitioners has further submitted that since the prosecution complaint stands filed, no useful purpose would be served by further incarceration of the petitioners in custody and they would be deprived of contesting their following cases:-

a) Proceedings before the Income Tax Authority pursuant to the remand ordered by the CIT Appeals, wherein, the directions have been issued that petitioners should be given adequate opportunity and confronted with all material/evidence/statements;

b) Contest the present case before the Trial Court, wherein, Prosecution Complaint has since been filed;

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c) Proceedings before the Adjudicating Authority in seisin of complaint filed by the respondent under Section 5(5) PMLA for attachment of their immovable property.

13. The learned senior counsel for the petitioners has further submitted that petitioners' conduct in cooperating with the investigation is undisputed and they have deep roots in society and the question of their absconding or evading the process of law does not even remotely arise.

14. The learned senior counsel for the petitioners has further submitted that in any event, the twin limitations contained in Section 45(1) PMLA do not get attracted to the case of the petitioners. He has further submitted that the Scheduled Offences in the present case as mentioned is the complaint filed by SFIO against the petitioners on 29.11.2016, inter alia, invoking Sections 420/120-B IPC. It is an undisputed fact that these offences came to be incorporated by way of an amendment into the PMLA in the year 2009 that too in Part B of the Schedule thereto. Indubitably, the twin limitations for grant of bail contained in Section 45 PMLA only bring within their fold the offences under Part A of the Schedule that too punishable for more than three years. Insofar as offences under Part B of the Schedule are concerned, the initiation under PMLA could take place only if the total value involved therein was more than Rs.30 lacs. Therefore, with an object to remove the said monetary threshold, an amendment was carried out in 2013, whereby all offences under Part B of the Schedule were BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 8 of 34 inserted in Part A. There was no legislative intent to invoke the limitations qua bail to such offences.

15. In support of his submissions, the learned senior counsel for the petitioners has relied upon the judgment in case Gorav Kathuria vs. Union of India; 2016 SCC OnLine P&H 3428.

16. The learned senior counsel for the petitioners has further submitted that the petitioners, i.e. Virendra Jain and Surendera Kumar Jain, are the brothers. He has submitted that the petitioners are in custody since 20.03.2017 and the prosecution complaint has already been filed on 18.05.2017. It is further submitted that prior to their arrest, the petitioners were associated with investigation on several occasions and they rendered full cooperation. The case originates from an Income Tax Raid conducted at the residential and business premises of the petitioners on 14.09.2010 and assessment order was passed against the petitioners and their appeals before the Commissioner of Income Tax were also dismissed. However, the Income Tax appellate tribunal on 03.02.2016 had set aside the orders passed by the assessing authority and the appellate authority and the matter is now remanded back for a fresh consideration. The petitioners had filed a petition for amalgamation of the two companies before this Hon'ble Court and in those proceedings a report was submitted by the Registrar of Companies who had stated that there were certain anomalies in the functioning of the companies. The Ministry of Corporate Affairs thereafter initiated an investigation by SFIO BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 9 of 34 under Section 241 of the Companies Act on 28.10.2013. The SFIO submitted investigation report to the Ministry of Corporate Affairs on 31.03.2016 and thereafter on 30.05.2016 the Ministry of Corporate Affairs granted sanction directing the SFIO to file a criminal complaint against the petitioners. On 29.11.2016 criminal complaint against 31 accused persons including the petitioners were filed under Sections 233/628 read with 211 and 240 (3) of the Companies Act, 1956 and Sections 420/468/477-A/120-B IPC and that criminal complaint remained pending and no cognizance was taken by the concerned Metropolitan Magistrate till 6th June, 2017. Without cognizance having been taken in the criminal complaint on 11 th February, 2017, the present respondent/complainant lodged an ECIR for offences under Sections 3/4 of PMLA relying on the said criminal complaint as the schedule offence. On 13.02.2017 search was conducted by the respondent/department in the petitioners residential premises and thereafter the petitioners were summoned to appear on various occasions and the petitioners complied with those summons. The petitioners have no objection to retention thereafter and the said application was allowed by the adjudicating authority on 29.05.2017. The respondent/complainant has also initiated attachment of immovable property of the petitioners by filing a complaint under Section 5 (5) of PMLA before the adjudicating authority and that matter is pending adjudication. In the meanwhile, they BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 10 of 34 filed a prosecution complaint on 18.05.2017 and the matter is now pending trial.

17. The learned senior counsel for the petitioners has further submitted that the entire case is based upon the documents which are subject matter of criminal complaint filed by SFIO and this would be entirely a matter of trial whether the petitioners are guilty of accusations. The conduct of the petitioners is above bar and they have rendered all due cooperation to all the investigating agencies including the SFIO and that no ECIR could legitimately registered prior to the cognizance having been taken by the concerned court in the schedule offence. The proceeds of crime are seriously debatable issue and the respondent/complainant is only relying on the personal complaint filed by SFIO. The proceedings before the Income Tax Authority pursuant to direction are pending and petitioners would be deprived of the contest to those proceedings as well as the adjudication proceedings relating to attachment of immovable property as also their defence in both the criminal case in the present trial. The twin limitations contained in Section 45 (1) of PMLA are not attracted to the case of the petitioners because the schedule offence have been added in Part-A of the schedule by way of an amendment in 2013 and earlier they were in Part-B. The amendment was brought in only to remove the monetary threshold of Rs. 30 lacs and not to apply the twin limitations contained in Section 45 of PMLA. This issue has been raised BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 11 of 34 by a Division Bench of Punjab and Haryana High Court in Gorav Kathuria (supra) wherein it was held that the schedule offence contained in Part-B prior to amendment in 2013, the twin limitations of Section 45 of PMLA would not apply. While disposing of the said case the Division Bench of Punjab and Haryana High Court had issued a certificate of appeal under Article 134 of the Constitution of India and an appeal was filed before the Hon'ble Supreme Court. The Hon'ble Supreme Court vide order dated 12.08.2016 while dismissing the said appeal clearly held that the judgment of the High Court is correct. Therefore, the issue of applicability of twin limitations now stands accorded approval by the Hon'ble Supreme Court, even if the applicability of twin limitations under Section 45 of PMLA are presumed to be applicable. There is no bar to grant bail as it is only a reasonable satisfaction that this Court is required to accord as to whether a case for bail is made out or not. In this context, the reliance is placed on the judgment of the Hon'ble Supreme Court in case Ranjitsing Brahmjeetsing Sharma vs. State of Maharashtra And Another; 2005 5 SCC 294 and two judgments of Bombay High Court in Anil Babulal Chokhra vs. Directorate of Enforcement, Mumbai & Anr.; Bail Appl. No. 1581/2017 dated 04.08.2017 as well in Kailash Aggarwal vs. The Enforcement Directorate Mumbai & Anr.; Bail Appl. No. 174/2017 dated 28.02.2017.

18. The learned senior counsel for the petitioners has further submitted that Gorav Kathuria (supra) is a definite law laid BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 12 of 34 down under Article 141 of the Constitution of India by Hon'ble Supreme Court. Specific reliance is made to paras 9 & 10 of the said judgment to argue that Union of India as well as the Enforcement Directorate were parties before the High Court and they had duly addressed their arguments. In paras 31, 36, 37 & 38 of the said judgment, definite law was laid down that twin limitations under Section 45 of PMLA would not apply to Part- B offence prior to the amendment of 2013. In para 72 of the aforesaid judgment, Gautam Kundu vs. Directorate of Enforcement (Prevention of Money-Laundering Act), Government of India; (2015) 16 SCC 1 case has also been considered by the High Court of Punjab and Haryana. In para 80 of the said judgment, the High Court issued a certificate of appeal which clearly stated that there is no other judgment passed by the Hon'ble Supreme Court on this aspect. The Hon'ble Supreme Court vide its order dated 12.08.2016 clearly held that the view of the High Court is correct. Reliance is placed on the judgment of the Hon'ble Supreme Court in V.M.Salgaocar & Bros. Pvt. Ltd. vs. Commissioner of Income Tax; (2000) 5 SCC 373 to show that once an appeal is dismissed by the Hon'ble Supreme Court it amounts to the doctrine of merger applies and the judgment of the High Court gets merged into that of the Supreme Court which is a binding precedent.

19. It is further submitted that Gautam Kundu (supra) had no occasion to deal with the question as to whether post BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 13 of 34 amendment of 2013 the erstwhile Part-B offences which have now been merged into Part-A would still attract the rigours of Section 45 of PMLA. A judgment of the Court cannot be read as an arithmetical and mathematical theorem and it must be read in the context of the lis. The reliance placed by other side on the view taken by Karnataka High Court and Gujarat High Court that Gorav Kathuria (supra) is not a binding precedent are per-inquirium. Thus, High Courts have not considered the ratio of law laid down in V.M.Salgaocar (supra). In any event in a recent pronouncement later than those High Courts the Madras High Court in J.Sekar vs. Assistant Director, Directorate of Enforcement, Chennai Zonal Office; Criminal Original Petition Nos. 7146/2017 dated 12.05.2017 has clearly held that doctrine of merger applies and in view of Gorav Kathuria (supra) twin limitations of Section 45 of PMLA will not apply.

Regarding merits, it is submitted that the respondent/Enforcement Directorate has indulged in a gross abuse of the process of law.

20. It is further submitted that as per accusations the petitioners have received commission to the tune of about Rs. 1,11,00,000/- for the purpose of converting unaccounted money of Rs. 62.20 crore pertaining to M/s Jagat Projects Limited. There is absolutely no offence that unaccounted cash was either found from the premises of the petitioners through the raids conducted by Income Tax Department, SFIO or the respondent/Enforcement Directorate. The companies of the BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 14 of 34 petitioners which have invested into the shares of M/s Jagat Projects Limited, no cash transaction has been made therein. At the relevant time when the shares were purchased there was no bar under the Companies Act for the payment of any premium. All this matter is sub-judice before various forums and it will be a matter of adjudication as to whether the petitioners have actually received the amount of Rs. 1,11,00,000/- as commission. The case of the petitioners is that this amount was received in their accounts for the profit of their investment. The investigations were yet pending and even the prosecution had not been lodged. The primary reason for rejection was the non- placement of 6000 pages of the record of SFIO. The allegation of tempering is not borne out at all since the entire case is based upon documents which are already in their possession. The maximum punishment envisaged under the Act is 7 years and the petitioners have bed ridden mother, who is about 80 years old and suffering from blood cancer and other related ailments. No ESIR could have been registered without taking cognizance in the schedule offence by the concerned Court as it would amount to usurping of jurisdiction by the respondent/Enforcement Directorate when none exists. The PMLA clearly contemplates existence of a schedule offence prior to invocation of the proceedings therein.

21. On the other hand, learned ASG Mr. Sanjay Jain has submitted that in the light of the investigation conducted so far, it is clearly established that petitioners, i.e. (1) Virendra Jain BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 15 of 34 and (2) Surendra Kumar Jain (Jain Brothers), are involved in the activities of laundering of money for clients having unaccounted cash with the help of a group of companies providing the facility of placement of unaccounted cash, layering of transactions and integration of the layered money into the books of the owners of unaccounted cash in the guise of fresh share subscription at a premium. He has further submitted that the original owners of unaccounted funds regain control over their entities by subsequent transfer of shares at a drastically discounted price in the names of close relatives/associates of the promoters/directors. He has further submitted that the full cycle of activities is clearly visible in the case of companies controlled by Jain Brothers (petitioners herein) and M/s Jagat Projects Ltd. with the mediation of Rajesh Aggarwal, Chartered Accountant.

22. The learned ASG has further submitted that M/s Jagat Projects Ltd, have converted its unaccounted money to the tune of Rs. 64.70 Crore into apparently legitimate transactions by way of share subscription by various companies. He has further submitted that this illegal activity related to the scheduled offence have generated property involved in money laundering to the extent of Rs. 64.70 Crore which was further invested by M/s Jagat Projects Ltd. into their sister concern M/s Divine Infracon Pvt. Ltd. for construction of Hotel, (now managed by Radisson Blu) at Plot No. 4, Sector-13, Dwarka, New Delhi.

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23. The learned ASG has further submitted that Jain Brothers have received funds of Rs. 62.20 Crore in advance from M/s Jagat Projects Ltd. through Rajesh Aggarwal, Chartered Accountant and placed the funds, pertaining to M/s Jagat Projects Ltd., from the accounts of various firms into the account of M/s Tulika Securities Pvt. Ltd. for layering and then these funds were transferred to 26 companies for final investment into M/s Jagat Projects Ltd. He has further submitted that for the entire process of receiving funds pertaining to M/s Jagat Projects Ltd., in the accounts of various firms and from there into the account of M/s Tulika Securities Pvt. Ltd. for layering and then transferring to the accounts of their 26 companies for final investment into M/s Jagat Projects Ltd., the petitioners, i.e. (1) Virendra Jain and (2) Surendra Kumar Jain (Jain Brothers), have received commission to the tune of Rs. 1,11,96,000/- through their companies for converting unaccounted money of Rs. 62.20 Crore belonging to M/s Jagat Projects Ltd. into their share capital/premium. So the amount of Rs. 1,11,96,000/- received as commission is the proceeds of crime of Jain Brothers. He has further submitted that the proceeds of crime are inseparable between both brothers (petitioners herein) as they were involved in the accommodation entry business and were maintaining documents and records unitedly.

24. The learned ASG has further submitted that from the statements of petitioners, i.e. (1) Virendra Jain and (2) Surendra BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 17 of 34 Kumar Jain, and other evidences collected during investigation, it is established that Surendera Kumar Jain and Virendera Jain and the companies/firms controlled and managed by Surendera Kumar Jain and Virendera Jain (Jain Brothers) were involved in the offence of money laundering punishable under Section 4 of PMLA ibid. He has further submitted that investigation has revealed that the modus operandi of Jain brother was to launder the unaccounted money through the companies controlled and managed by them by process of placement of funds, layering of transactions and the final integration of laundered money into the banking channel camouflaged as legitimate share premium transactions. He has further submitted that funds were brought in by the mediators on behalf of the beneficiaries. The Jain Brothers (petitioners herein) were providing accommodation entries by accepting funds from their beneficiaries through mediators and converting the same into share premium transactions in the beneficiary company. In this process Jain Brother earned money as a certain percentage of the unaccounted money converted into share premium. Jain brothers have received funds of Rs. 62.20 Crore in advance from M/s Jagat Projects Ltd. through Rajesh Aggarwal, Chartered Accountant and placed the funds, pertaining to M/s Jagat Projects Ltd., from the accounts of various firms into the account of M/s Tulika Securities Pvt. Ltd., for layering and then theses funds were transferred to 26 companies for final investment into M/s Jagat Projects Ltd. For the entire process of BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 18 of 34 receiving funds pertaining to M/s Jagat Projects Ltd., in the accounts of various firms and from there into the account of M/s Tulika Securities Pvt. Ltd. for layering and then transferring to the accounts of their 26 companies for final investment into M/s Jagat Projects Ltd. the petitioners have received commission to the tune of Rs.1,11,96,000/- through their companies for converting unaccounted money of Rs. 62.20 Crore belonging to M/s Jagat Projects Ltd. into their share capital/premium. Thus, the petitioners have directly attempted to indulge and knowingly assisted an actually involved in the process of concealment, possession, acquisitions, use and projecting it as untainted property, and thereby they have committed an offence of money laundering.

25. The learned ASG on behalf of the respondent has submitted that at the very outset it becomes essential in the context of this matter to appreciate the parameters of grant or refusal of bail as envisaged under Section 45 of PMLA, 2002. It is noteworthy that Section 45 of PMLA entails with rigours before another decision is taken as to grant or refusal of bail. Rigours are that before a person can be considered to be released on bail. Public prosecutor has to be given an opportunity to oppose the application and if public prosecutor opposes the application then the Court will have to be satisfied that there are reasonable grounds for believing that the petitioner is not guilty of the offence of Money Laundering and that he is not likely to commit any offence while on bail. We BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 19 of 34 would submit that the ordinary law pertaining to grant or refusal of bail or as canvassed by learned counsel for the petitioners that only reasonable satisfaction is required, could not be the correct law to be applied in PMLA case. The learned counsel for the petitioners has urged that mainly because the provisions which constitute the Scheduled Offence have been migrated to Part-A only in 2013 and, therefore, the twin rigours would not apply because the offending act on behalf of the petitioners as per the case of the respondent/department had commenced prior to 2013 is also incorrect.

26. In this regard, the respondent/department would like to rely on the judgment of the Hon'ble Supreme Court in case Gautam Kundu vs. Directorate of Enforcement (Prevention of Money-Laundering Act), Government of India; (2015) 16 SCC 1. In the said judgment it was held by Hon'ble Supreme Court as regards the twin rigours of Section 45 of PMLA, that while there is no doubt that the conditions laid down under Section 45 of PMLA would bind the High Court as the provisions of special law having overriding effect on the provisions of Section 439 Cr.PC for grant of bail to any person accused of committing an offence under Section 4 of the PMLA. The said observation of the Hon'ble Supreme Court was followed in a subsequent judgment of the Hon'ble Supreme Court in Crl.A.No. 1223/2017 titled Union of India vs. Varinder Singh @ Raja & Anr. dated 21.07.2017 in which it has been held that when complying with a requirement of BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 20 of 34 Section 45 of PMLA, the High Court should not have granted the bail. By this order the Hon'ble Supreme Court had set aside the order of granting the bail passed by the High Court. The respondent/Department would also placed reliance on a judgment of a High Court of Karnataka passed in S.C. Jayachandra vs. Enforcement Directorate, Banglore; MANU/KA/0456/2017.

27. The Karnataka High Court discussed in detail as to whether the judgment of Punjab and Haryana High Court in Gorav Kathuria (supra) would be constituted as having binding effect within the meaning of Article 141 of the Constitution of India. After considering several judgments on this aspect, the Court came to the conclusion in para 30 of the judgment that Gorav Kathuria (supra) case cannot be treated as a binding precedent and further held that the pronouncement in Gautam Kundu (supra) was still the good law, so far as the question regarding limitations prescribed in Section 45 (1) of PMLA are concerned, in the said judgment, it has also been noticed that in Gorav Kathuria (supra), Union of India was neither present and hence could not be heard and more so, said judgment could not be taken as a binding precedent because the judgment itself was contrary to the law laid down by the Hon'ble Supreme Court in Gautam Kundu (supra). The respondent/department would further urge that the above view of the Karnataka High Court has been followed by several other High Courts as would be BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 21 of 34 clear from the judgment of Pradeep Nirankarnath Sharma vs. Directorate of Enforcement; MANU/GJ/1110/2017.

28. It is, therefore, clear from the conjoint reading of the above judgment that listing of the schedule offence in Part-A by virtue of amendment in 2013 is not at all the relevant factor for deciding a bail application under Section 45 of PMLA and does not in any manner dilute or eclipse the twin rigours of Section 45 of PMLA which expect the Court considering the bail application to come to a satisfaction to the fact that there are reasonable grounds for believing that the petitioners are not guilty of offence of Prevention of Money Laundering Act and that they are not likely to commit any offence while on bail. The respondent/department would like to draw the kind attention of this Court on the seriousness and gravity of the offence as apparently is made out in the facts of the case. The respondent/department would like to draw the kind attention of this Court to the counter affidavit filed by it in which the relevant facts have been set out, particularly as regards the investigation conducted by SFIO.

29. The learned ASG has further submitted that there is a company of M/s Jagat Projects Limited which wanted accommodation entries. The unaccounted money of M/s Jagat Projects Limited was diverted to a mediator called Rajesh Aggarwal, Chartered Accountant for placement of the same through other companies. The said Rajesh Aggarwal, Chartered Accountant placed the unaccounted money of M/s Jagat BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 22 of 34 Projects Limited through the companies managed and controlled by the petitioners. This was a method of layer. The unaccounted money of M/s Jagat Projects Limited pursuant to which the companies held and controlled by the petitioners made investment in M/s Jagat Projects Limited by purchasing their shares at Rs. 10/- per share at the high share premium of Rs. 400/- per share. In this manner, the unaccounted money of M/s Jagat Projects Limited challenges through Rajesh Aggarwal, Chartered Accountant and then the petitioners were brought back into the accounts of M/s Jagat Projects Limited in a laundered firm. Thus it is a most blatant case of Money Laundering. It is in these circumstances that the respondent/Enforcement Directorate had commenced the investigation under PMLA and having found unimpeachable material in the course of its investigation, eventually instituted the statutory complaint before the Special Court. The cognizance has already been taken in respect of PMLA complaint on 03.07.2017. In fact a bail application was filed before the Special Court also, which has been dismissed with a detailed reasoning vide order dated 02.05.2017.

30. It is further submitted that there is no change of circumstances. Since the time the bail was refused and in fact the special court had all the material available to it while adjudicating upon the said bail applications. As regards the argument of the ECIR wrongly been initiated for the reason that on 11.02.2017, the Court had not taken cognizance on the BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 23 of 34 complaint filed by SFIO under the schedule offence the same is also incorrect because there is no requirement in law that for initiating an inquiry or investigation under PMLA the Court should have taken cognizance of the schedule offence. It is clear from the reading of the Section 19 of the Act that the factum of taking or not taking the cognizance of schedule offence is irrelevant and immaterial for the purposes of reason to believe under Section 19 for making arrest. The schedule offence has relevance only to the extent that for initiating inquiry under PMLA thereto either be an FIR under schedule offence or a complaint under schedule offence. The registration of FIR or the filing of complaint is only a trigger point for starting investigation under PMLA and in the entire Act it is nowhere mandatory that the authorities concerned with PMLA investigation should wait till such time cognizance of schedule offence is taken by the concerned Court.

31. The learned counsel for the respondent/department would therefore urge that none of the submissions made for grant of bail hold good because the investigation under PMLA was undertaken only after SFIO filed a complaint on 29.11.2016 under the schedule offences covered under Part-A; the offences where the Act is continuing un-awaited and in respect of which the starting point was immaterial and since proceeds of crime is not a seriously debatable issue as contended by learned counsel for the petitioners. It is urged by learned counsel for the respondent/department that rigours of Section 45 of PMLA BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 24 of 34 would not permit the grant of bail inasmuch as it is urged that there is no record to contend that there are reasonable ground for believing that the petitioners are not involved in the offence of money laundering or that they are not likely to commit any offence while on bail. It is also urged by counsel for the respondent/department that there is a serious likelihood of tempering with the evidence. Keeping in view the nature of transaction which involves placement and layering of tainted money or the proceeds of crime by falsification of records and arbitrary and illegal enhancement of the share premium in respect of such shares which had no value in the market. The learned counsel for the respondent/department, therefore, urged that in view of the clear cut law laid down by Hon'ble Supreme Court in Gautam Kundu (supra), regularly followed by Hon'ble Supreme Court as well as different High Courts, there is no ground made out for grant of bail.

32. The instant petitions for grant of bail under Section 439 Cr.P.C. are arising from ECIR/01/DLZO-II/2017, under Sections 3 & 4 of Prevention of Money Laundering Act, 2002 on the basis of Criminal Complaint No. 57463 of 2016. The allegations made in ECIR/01/DLZO-II/2017 at para 7.3 is that M/s Jagat Projects Ltd. with the help of Chartered Accountant Rajesh Aggarwal and other accused persons as shown in ECIR/01/DLZO-II/2017 dated 11.02.2017 were involved in BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 25 of 34 money laundering activities wherein M/s Jagat Projects Ltd. succeeded in laundering its unaccounted income through a set of companies controlled by the petitioners in the guise of share subscription money at a huge premium to the tune of Rs. 64.70 Crore during the financial year 2008-09. The entire share subscription (including the share premium) of Rs. 64.70. Crore has been held to be unexplained cash credit under Section 68 of the Income Tax Act in the hands of M/s Jagat Projects Ltd.

33. Further M/s Jagat Projects Ltd. failed to explain the payment of Rs. 1,16,46,000/- Crore @ 1.80% on the total accommodation entries of Rs. 64.70 Crore made to the petitioners for securing accommodation entries has been an unexplained expenses incurred during the assessment year 2009-10. The allegations qua against the present petitioners are that (1) Virendra Jain and (2) Surendra Kumar Jain (Jain Brothers) are involved in activities of laundering of money for clients having unaccounted cash and were providing the facility through skilled persons Chartered Accountant, Rajesh Aggarwal to make the unaccounted cash to white money and M/s Jagat Projects Ltd. succeeded in doing so to the tune of Rs. 64.70 Crore in the form of legitimate transaction through illegal act by way of share subscription by various companies controlled by Jain Brothers (petitioners herein) to avoid the income tax liabilities and obtained consequential payment of Rs. 1,16,40,000/- Crore @ 1.80% on the total accommodation entries of Rs. 64.70 Crore. The said illegal activity is the BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 26 of 34 schedule offence under the Prevention of Money Laundering Act, 2002.

34. The modus operandi adopted by the petitioners as per the counter affidavit filed by the respondent/department at para 10.16 is as under:-

"10.16 The modus operandi adopted by Jain Brothers is to create artificially Reserve& Surplus and consequent Investment in a set of private companies controlled by them. A total of approximately Rs. 8000 Crore in the balance sheet of 08 private limited companies was thus created. The second step is to acquire the management control of some listed companies through postal ballot. The subsequent step is to pick up one of the private companies controlled by them, and move an application for amalgamation. One scheme of amalgamation involving Rs. 1000 Crore of Reserve& Surplus and Investment, has already been was completed by Jain Brothers. Subsequently, Sh. Surendra Kumar Jain acquired SNLFL through postal ballot and filed an application for scheme of amalgamation between NKS and SNLFL. Jain brothers still left with 06 companies having Reserves & Surplus and investment of approximately Rs. 1000 Crore in each of these companies and two (2) listed NBFCs with arrangement control over them. It is through the liquidation of fictitious investment in the merged company, laundering of money can be done."

35. During the investigation the respondent/department recorded the statement of the petitioner-Surendra Kumar Jain under Section 50 of PMLA which reveals that the mediator Rajesh Aggarwal, Chartered Accountant has given cheque to their group/associate companies for buying shares of M/s Jagat BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 27 of 34 Projects Ltd. at a high price, i.e. Premium of Rs 390/- per share on share of Rs. 10/- each per share with buy back guarantee and later on as per advice/direction of Rajesh Aggarwal, Chartered Accountant those shares were transferred to the companies of the persons/associates of M/s Jagat Projects Ltd. at a nominal price of Rs. 10-12/- per share; that due to this activity of buying shares at premium and selling the same at nominal price, their holding companies have made huge losses in the books of account but in actual the said amount has already been received by their companies in advance against the sale of shares from the beneficiary/mediator Rajesh Aggarwal, Chartered Accountant and all these transaction are duly recorded in books of account of respective companies.

36. Further, out of the 30 companies 26 companies belongs to the petitioner-Surendera Kumar Jain and the aforesaid 26 companies invested a sum of Rs. 62.20 Crore in the share capital of M/s Jagat Projects Ltd. @ premium of Rs. 390/- per share of Rs. 10/- each share. It further reveals that the said 26 companies which made investment in share capital of M/s Jagat Projects Ltd. through Rajesh Aggarwal, Chartered Accountant, got profit of approximately 1.50% by way of fund which was sent by Rajesh Aggarwal, Chartered Accountant to the petitioner's group companies for investment in M/s Jagat Projects Ltd. The profit received from Rajesh Aggarwal on behalf of M/s Jagat Projects Ltd. has gone up to Rs. 1,11,96,000/-.

BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 28 of 34

37. Further, it is revealed that out of the 95 companies which were managed and controlled by the petitioner-Surendera Kumar Jain and his brother Virendra Jain, 17 companies are registered at 3198/15, 4th Floor, Gali No-1, Sangatrahsna, Paharganj, New Delhi-110055 and 24 persons who are directors in these 17 companies are having the same residential address. Further, 11 companies are registered at 209, Bhanot Plaza-II, 3 DB Gupta Road, Paharganj, New Delhi-110055 and 15 persons who are directors in these 11 companies have the same residential address. The premises 3198/15, 4th Floor, Gali No-1, Sangatrahsna, Paharganj, New Delhi-110055 is owned by the petitioner-Virendra Jain and the premises 209, Bhanot Plaza-II, 3 DB Gupta Road, Paharganj, New Delhi-110055 is owned by the petitioner-Surendra Kumar Jain and in these companies he himself and his family members, i.e. Virendra Jain, Preeti Jain and Babita Jain, are the directors. It indicates that these 95 companies are merely companies on papers for making investments in share premium etc. by various beneficiaries through the mediators.

38. It further reveals that from the statement of the petitioner-

Surendra Kumar Jain that an amount of Rs. 1,11,96,000/- was received as profit in the said transaction from M/s Jagat Projects Ltd. Further, the statement of the petitioner-Virendra Jain made under Section 50 of PMLA are also on the same line as that of the petitioner-Surendra Kumar Jain.

BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 29 of 34

39. In totality the petitioners- (1) Virendra Jain and (2) Surendra Kumar Jain has created a device of money laundering by making investment in the share capital of M/s Jagat Projects Ltd. through skilled person Rajesh Aggarwal, Chartered Accountant; without putting the business in reality by purchasing share capital at a high price, i.e. Premium of Rs 390/- per share on share of Rs. 10/- each per share each with buy back guarantee, which made them profit of Rs. 1,11,96,000/- through illegal means.

40. Admittedly the complaint was filed against the petitioners on the allegation of committing offence punishable under Section 4 of PMLA which is an Economic offence and need to be visited with a different approach in the matter of bail. The contention made on behalf of the petitioners that no offence is made out against the petitioners under Sections 420/120-B IPC, which is a Schedule Offence under PMLA needs to be considered from the material collected during the investigation and further to be considered by the competent Court and not by this Court at this stage.

41. The Apex Court in Y.S. Jagan Mohan Reddy vs. Central Bureau of Investigation; AIR 2013 SC 1933 has observed as under:-

"34. Economic offences constitute a class apart and need to be visited with a different approach in the matter of bail. The economic offence having deep rooted conspiracies and involving huge loss of public funds needs to be viewed seriously and considered as grave offences affecting the economy of the BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 30 of 34 country as a whole and thereby posing serious threat to the financial health of the country.

35. While granting bail, the court has to keep in mind the nature of accusations, the nature of evidence in support thereof, the severity of the punishment which conviction will entail, the character of the accused, circumstances which are peculiar to the accused, reasonable possibility of securing the presence of the accused at the trial, reasonable apprehension of the witnesses being tampered with, the larger interests of the public/State and other similar considerations."

(emphasis supplied)

42. The Apex Court in Gautam Kundu v. Manoj Kumar, Assistant Director, Eastern Region Directorate of Enforcement (Prevention of Money Laundering Act) Government of India reported in AIR 2016 SCC 106 while dealing with an SLP, wherein an application for bail under Section 439 Cr.P.C. was rejected by the High Court, on merit has made the following observations:-

"28. Before dealing with the application for bail on merit, it is to be considered whether the provisions of Section 45 of the PMLA are binding on the High Court while considering the application for bail under Section 439 of the Code of Criminal Procedure. There is no doubt that PMLA deals with the offence of money laundering and the Parliament has enacted this law as per commitment of the country to the United Nations General Assembly. PMLA is a special statute enacted by the Parliament for dealing with money laundering. Section 5 of the Code of Criminal Procedure, 1973 clearly lays down that the provisions of the Code of Criminal Procedure will not affect any special statute or any local law. In other words, the provisions of any special statute will prevail BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 31 of 34 over the general provisions of the Code of Criminal Procedure in case of any conflict.

29. Section 45 of the PMLA starts with a non obstante clause which indicates that the provisions laid down in Section 45 of the PMLA will have overriding effect on the general provisions of the Code of Criminal Procedure in case of conflict between them. Section 45 of the PMLA imposes following two conditions for grant of bail to any person accused of an offence punishable for a term of imprisonment of more than three years under Part-A of the Schedule of the PMLA:

(i) That the prosecutor must be given an opportunity to oppose the application for bail; and

(ii) That the Court must be satisfied that there are reasonable grounds for believing that the accused person is not guilty of such offence and that he is not likely to commit any offence while on bail.

30. The conditions specified Under Section 45 of the PMLA are mandatory and needs to be complied with which is further strengthened by the provisions of Section 65 and also Section 71 of the PMLA. Section 65 requires that the provisions of Code of Criminal Procedure shall apply in so far as they are not inconsistent with the provisions of this Act and Section 71 provides that the provisions of the PMLA shall have overriding effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. PMLA has an overriding effect and the provisions of Code of Criminal Procedure would apply only if they are not inconsistent with the provisions of this Act. Therefore, the conditions enumerated in Section 45 of PMLA will have to be complied with even in respect of an application for bail made Under Section 439 of Code of Criminal Procedure. That coupled with the provisions of Section 24 provides that unless the contrary is proved, the Authority or the Court shall presume that proceeds of BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 32 of 34 crime are involved in money laundering and the burden to prove that the proceeds of crime are not involved, lies on the Appellant."

33.......... We have noted that Section 45 of the PMLA will have overriding effect on the general provisions of the Code of Criminal Procedure in case of conflict between them. As mentioned earlier, Section 45 of the PMLA imposes two conditions for grant of bail, specified under the said Act. We have not missed the proviso to Section 45 of the said Act which indicates that the legislature has carved out an exception for grant of bail by a Special Court when any person is under the age of 16 years or is a woman or is a sick or infirm. Therefore, there is no doubt that the conditions laid down Under Section 45A of the PMLA, would bind the High Court as the provisions of special law having overriding effect on the provisions of Section 439 of the Code of Criminal Procedure for grant of bail to any person accused of committing offence punishable Under Section 4 of the PMLA, even when the application for bail is considered Under Section 439 of the Code of Criminal Procedure."

(emphasis supplied)

43. In the instant petitions the petitioners, i.e. (1) Virendra Jain and (2) Surendra Kumar Jain, are involved in illegal activities of money laundering by way of share subscription with the help of a skilled person Rajesh Aggarwal, Chartered Accountant and the petitioners succeeded in receiving proceeds of crime amounting to Rs. 1,11,96,000/-, which is a Schedule Offence under Sections 3 & 4 of PMLA. The aforesaid activities of the petitioners is illegal and not permissible under the law. Therefore, the conditions laid down under Section 45 of BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 33 of 34 PMLA will have an overriding effect on the general provisions of the Cr.P.C. This Court in cases Anand Chauhan vs. Directorate of Enforcement; MANU/DE/0928/2017; 240 (2017) DLT 681 and Rohit Tandon vs. Enforcement Directorate; MANU/DE/1240/2017; 2017 (2) JCC 1241 had also said so and the arguments advanced as well as the judgments relied by the learned senior counsel for the petitioners loses its significance in view thereof.

44. Consequently, this Court find no merit in the present petitions and the bail applications, i.e. BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017, of the present petitioners, i.e. (1) Virendra Jain and (2) Surendra Kumar Jain are rejected.

45. Observations made in this order shall have no effect on the merit of the case. One copy of this order be sent to the concerned Court.

46. Let one copy of this order be placed on the file of BAIL APPLN. 1114/2017.

I.S.MEHTA, J SEPTEMBER 20, 2017/sr BAIL APPLN. 1113/2017 & BAIL APPLN. 1114/2017 Page 34 of 34

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