Supreme Court directs Bihar MLC's son to surrender within one week in PMLA case, sets aside Patna High Court's bail order

Kanhaiya Prasad, the son of Radha Charan Sah, the Member of Bihar Legislative Council (MLC) who was released on bail was directed by the Supreme Court to "surrender before the Special Court within one week" from February 13, 2025 although it has not "expressed any opinion on the merits of the case." 

Setting aside a judgement of Dr. Anshuman of Patna High Court, Supreme Court's division bench of Justices Bela M. Trivedi and Prasanna B. Varale observed: "The High Court has utterly failed to consider the mandatory requirements of Section 45 and to record its satisfaction whether any reasonable ground existed for believing that the respondent was not guilty of the alleged offence, and that he was not likely to commit any offence while on bail. Merely because the prosecution complaint had been filed and the cognizance was taken by the court that itself would not be the ground or consideration to release the respondent on bail, when the mandatory requirements as contemplated in Section 45 have not been complied with." The 16-page long judgement was authored by Justice Trivedi. 

Supreme Court's judgement reads: "As well settled, the offence of money laundering is not an ordinary offence. The PMLA has been enacted to deal with the subject of money laundering activities having transnational impact on financial systems including sovereignty and integrity of the countries. The offence of money laundering has been regarded as an aggravated form of crime world over and the offenders involved in the activity connected with the Proceeds of Crime are treated as a separate class from ordinary criminals. Any casual or cursory approach by the Courts while considering the bail application of the offender involved in the offence of money laundering and granting him bail by passing cryptic orders without considering the seriousness of the crime and without considering the rigours of Section 45, cannot be vindicated."

Some 20 FIRs were registered at the police stations at Patna, Saran and Bhojpur districts under Sections 38, 120B, 378, 379, 406, 409, 411, 420, 467, 468 and 471 of IPC, and under Section 39(3) of the Bihar Mineral, (Concession, Prevention of Illegal Mining, Transportation & Storage) Rule, 2019. It is alleged inter alia that M/s Broad Son Commodities Private Ltd and its Directors were engaged in illegal mining and selling of sand without using the departmental pre-paid transportation E-challan, issued by the Mining Authority Bihar, and thus had caused revenue loss of Rs.161,15,61,164/- to the Government Exchequer. Since the said FIRs contained Scheduled offences as defined under Section 2(1)(y) of the Prevention of Money Laundering Act, 2002 (PMLA), ECIRs dated March 15, 2023, addendum ECIR dated November 8, 2023 and dated May 4, 2024 came to be registered, and the investigation for the offences of Money Laundering was initiated.

During the course of investigation, search operations were carried out under Section 17 of PMLA at the various locations and premises related with the said Company and its Directors, including four premises of Radha Charan Sah, (father of the respondent). During the course of inquiry, the statements of the respondent-Kanhaiya Prasad, being son of the said Radha Charan Sah was recorded on September 1, 2023 and September 4, 2023 under Section 50 of the PMLA. It has been alleged by the appellant-ED that thereafter the respondent was issued summons to appear before the Directorate on September 11, 2023, September 12, 2023 and September 13, 2023, however, he failed to appear on the said dates. The respondent thereafter was arrested at the ED, Patna Zonal Office, Bihar on September 18, 2023. On production of the respondent before the concerned court, his custody was handed over to ED, on September 22, 2023.

From the documents seized from the premises of the Radha Charan Sah and from the statements recorded under Section 50 of the Witnesses, of the respondent and of his father, it was found that the Kanhaiya Prasad, the respondent-accused was actually involved in the process of concealing and the possession of the proceeds of crime amounting to Rs.17,26,85,809/- which were used for carrying out the renovation work in the resort at Manali and for the construction work of the school owned by his trust. It was also found that the respondent-accused had handled the proceeds of crime and transferred it by using hawala network for acquisition of the resort at Manali. It was also alleged that the entire work of family-owned LLP’s and of Maa Sharda Devi Buildings and Construction, was handled by Kanhaiya Prasad, the respondent to route the proceeds of crime generated by his father to portray it as untainted money. Kanhaiya Prasad  had allegedly layered and laundered the proceeds of crime generated by his father, being a syndicate member involved in illegal sale of sand using hawala network. The respondent also had allegedly concealed the proceeds of crime by way of purchasing properties, carrying out renovation work and constructions in the family owned trust property using the said proceeds of crime.

ED filed Prosecution Complaint against the respondent and other accused on November 10, 2023 for the offences under  Section 3 read with Section 4 of the PMLA. The specific role of the Kanhaiya Prasad is mentioned in the Prosecution Complaint. The PMLA Court had taken cognizance of the alleged offences on November 10, 2023.

Kanhaiya Prasad haf filed the application being Criminal Miscellaneous before the High Court seeking regular bail in connection with the Prosecution Complaint registered as Special Trial (PMLA Case) before the Special Judge, PMLA. 

ED's counsel objected to the High Court's judgement as it did not comply with requirements under Section 45 of the PMLA. The High Court has misinterpreted and misread the ratio of the relevant judgments particularly of the judgment of the 3-judge bench in Vijay Madanlal Choudhary & Ors. Vs. Union of India & Ors (2022), while holding that the provisions of Article 20(3) of the Constitution shall prevail upon Section 50 of the PMLA. 

In Vijay Madanlal Choudhary case, a bench headed by Justice A M Khanwilkar had dismissed concerns raised regarding the vast powers of the ED and possibility of misuse of the exacting standard for grant of bail in money laundering cases.

The counsel for the respondent relied upon the various decisions of the submitted that the respondent had cooperated with the ED during the course of enquiry, in as much as the respondent had remained present pursuant to the summons issued under Section 50 of the PMLA on September 1, 2023 and September 4, 2023 and had also paid the entire income-tax dues as were found to be allegedly due by the authorities.

Enforcement Directorate (ED) had challenged the legality of the impugned judgment and order of Patna High Court whereby the High Court had allowed released the respondent Kanhaiya Prasad on bail in connection with the Special Trial (PMLA) Case. 

Earlier, ED has provisionally attached 2 immovable properties to the extent of Rs. 26.19 crore acquired by Radha Charan Sah. 

Supreme Court observed: "the objective of the PMLA is to prevent money laundering which has posed a serious threat not only to the financial systems of the country but also to its integrity and sovereignty. The offence of money laundering is a very serious offence which is committed by an individual with a deliberate desire and the motive to enhance his gains, disregarding the interest of the nation and the society as a whole, and such offence by no stretch of imagination can be regarded as an offence of trivial nature."

The Supreme Court concluded: "The impugned order passed by the High Court being in teeth of Section 45 of PMLA and also in the teeth of the settled legal position, we are of the opinion that the impugned order deserves to be set aside, and the matter is required to be remanded to the High Court for fresh consideration." Justice Trivedi clarified: "we have not expressed any opinion on the merits of the case."

 

During the course of the hearing in the High Court, the counsel for Kanhaiya Prasad, the petitioner had submitted that "the petitioner has been made accused for an offence which is not schedule." He had also submitted that "evasion of income tax and the wrong under income tax does not come within the purview of the schedule offences as mentioned in the Prevention of Money and Laundering Act, 2002. He further submits that in the complaint itself, the Enforcement Directorate has intimated about 19 criminal cases pending and the petitioner is not an accused in any one of the 19 cases." He submitted that "all those cases come within the purview of the schedule offences, but petitioner is not an accused of the scheduled offence." These submissions are recorded in Dr. Anshuman's order dated March 14, 2024. Notably, this submission has not been disputed as yet. In this backdrop, it is significant that Supreme Court has not "expressed any opinion on the merits of the case."   

In his 40-page long judgement dated May 6, 2024, Dr. Anshuman concluded: "let the petitioner above named, be granted bail on furnishing bail bonds of Rs.1,00,000/- (Rupees One lacs only) with two sureties of the like amount each to the satisfaction of learned Special Judge, PMLA -cum- District and Sessions Judge, Patna in connection with Special Trial (PMLA) Case...." He imposed the following terms and conditions:-
"a) The petitioner shall furnish a personal bond with a surety in the sum of Rs. 1,00,000 to the satisfaction of the Trial Court;
b) The petitioner shall give up his citizenship of Dominican Republic within a period of 1 week from the date of release and documentary proof of the same be placed before the learned Trial Court;
c) The petitioner shall not leave the country during the bail period and surrender his Dominican Republic passport at the time of release before the Trial Court;
d) The petitioner shall join the investigation as and when called by the ED authority concerned;
e) The petitioner shall appear before the Court as and when the matter is taken up for hearing;
f) The petitioner shall provide his mobile number to the ED authority concerned at the time of release, which shall be kept in working condition at all times. The applicant shall not switch off, or change the same without prior intimation to the ED authority concerned, during the period of bail;
g) In case he changes his address, he will inform the ED authority concerned and this Court concerned also;
h) The petitioner shall not indulge in any criminal activity during the bail period;

i) The petitioner shall not communicate with or intimidate or influence any of the prosecution witnesses or tamper with the evidence of the case"

 

In his clarificatory order dated May 14, 2024, Dr. Anshuman observed: "it is directed to the trial Court that he shall accept the affidavit filed by the pairvikar in this regard that petitioner has no citizenship of Dominican Republic and he is ready to surrender his Indian Passport and then after taking the affidavit and undertaking of the petitioner in the light of Clauses (b) and (c) of the conditions, he is directed to release the petitioner on bail immediately. The order passed today shall be treated as part of order dated 06.05.2024." It is not clear as to how the reference to "citizenship of Dominican Republic" came in the judgement dated May 6, 2024. The criminal miscellaneous petition was filed on February 17, 2024 and registered on February 29, 2024 in the High Court.

 

Notably, Sah, the father of Kanhaiya Prasad was arrested in 2023 in connection with a money laundering case, lodged by ED. He was granted regular bail on July 3, 2024 by Justice Dr. Anshuman. In his 34-page long order, Justice Dr. Anshuman observed that "The petitioner is in custody since 14.09.2023 having age of 70 years and suffering from medical ailments. This Court is also conscious of the fact that the accused is charged in case of PMLA of high magnitude, but at the same time, this is also going on in the mind of this Court that the Investigating agency has already completed the investigation and charge-sheet has been filed in the form of complaint before Special Judge, E.D., Patna on which the Special Judge, E.D., Patna has already taken cognizance. It is due to this reason, the presence of the petitioner in judicial custody may not be necessary for further investigation and therefore, considering the old age of the petitioner, this Court is of the opinion that there is no chance of commission of crime by the petitioner while on bail and hence, in view of the Court, petitioner is entitled to grant bail pending trial on stringent conditions in order to alike the apprehension expressed by the E.D. In view of the discussions above, this Court is of the considered opinion that the petitioner is entitled for grant of bail on merit. Hence, the petitioner is directed to be released on bail on furnishing bail bonds of Rs.10,00,000/- (Rupees Ten Lacs) with two sureties of the like amount each to the satisfaction of learned Special Judge, PMLA-cum-District & Sessions Judge, Patna in connection with Special Trial (PMLA) Case...." He imposed the following conditions on Sah:
a) The petitioner shall not leave the country during the bail period and surrender his passport at the time of release before the Trial Court;
b) The petitioner shall appear before the Court as and when the matter shall be taken up i.e. to say on each and every date.
c) The petitioner shall provide his mobile number to the ED authority concerned at the time of release, which shall be kept in working condition at all times and he shall not switch off or change the same without prior intimation to the ED authority concerned, during the period of bail.
d) In case, he changes his address, he will inform the ED as well as to the concerned Court.
e) The petitioner shall not indulge in any criminal activity during the bail period.
f) The petitioner shall not influence the prosecution witness directly or remotely. The prosecuting agency will be at liberty to file an appropriate application for modification/for calling the order passed by this Court for any reason or the petitioner violates any of the conditions imposed by this Court. 

It has come to light that the respondent's father used to help his father in his sweet shop in the 1970s. His job was to make jalebis and sell them outside the Ara railway station in Bhojpur. Later on, he started his own hotels, resorts, rice mils and cold storage units in Bihar and other States such as Uttarakhand and Himachal Pradesh. He was elected as an MLC from the Bhojpur-Buxar Local Authority Constituency— first from RJD and then from JD(U) in the 2022 elections. ED has alleged that the proceeds of crime has been used for the construction of a school in Ghaziabad. An application was filed seeking quashing of the order dated February 2, 2024 passed in Special Trial (PMLA) case of March 15, 2023 by the Court of Special Judge, PMLA-cum-District and Sessions Judge, Patna whereby the application dated January 23, 2024 seeking permission to attend the sitting of Bihar Vidhan Parishad on February 12, 2024 at 11.00 A.M. and from judicial custody under police escort, was rejected. It is recorded in High Court's order dated February 9, 2024. 

Supreme Court quashes Patna High Court's decision and FIR, stops criminal proceedings against HDFC Bank

In HDFC Bank vs. The State of Bihar, Supreme Court's bench of Justices B.R. Gavai and K.V. Viswanathan quashed and set aside the judgment and order dated June 8, 2022 passed by Justice Partha Sarthy, the Single Bench of Patna High Court. The Supreme Court's judgement dated October 22, 2024 reads: "We are of the considered view that the continuation of the criminal proceedings against the appellant-bank would cause undue hardship to the appellant-bank." Besides the State of Bihar, there were four respondents namely, DGP, Patna, SP, Patna, the Officer In Charge and Priyanka Sharma, Deputy Director of Income Tax (INV). 

The Court also quashed and set aside the First Information Report being Case No. 549 of 2021 registered at Gandhi Maidan Police Station, Patna on November 22, 2021, against certain officials of the appellant-bank working at its Exhibition Road Branch, Patna for the offences punishable under Sections 34, 37, 120B, 201, 206, 217, 406, 409, 420 and 462 of the Indian Penal Code (IPC), 1860. Notably, a written complaint to the SHO, Gandhi Maidan Police Station seeking to register an FIR against Sunita Khemka and the concerned bank officials on the ground that the order dated October 5, 2021 had been violated owing to the unlawful operation of the locker of Sunita Khemka. 

On October 5, 2021, an order under Section 132(3) of the  Income Tax (IT) Act, 1961 was served upon the Branch Manager of the appellant-bank at its Exhibition Road Branch, Patna by the concerned Authorized Officer, thereby directing the said branch of the appellant-bank to stop the operation of any bank lockers, bank accounts and fixed deposits standing in the names of Sunil Khemka (HUF), Sunita Khemka and Shivani Khemka, among several other individuals and entities, with immediate effect. It was further clarified that contravention of the order would render the Branch Manager liable under Section 275A of the IT Act and the same would result in penal action. In compliance of the aforesaid order, the appellant-bank stopped the operation of the bank accounts, bank lockers and fixed deposits of the individuals/entities mentioned in the order. Further, on 7th October,2021, the appellant-bank blocked the bank accounts of the income-tax assesses named in the order and also sealed the bank locker bearing No. 462 belonging to Smt. Sunita Khemka.

Later, on November 1, 2021, Priyanka Sharma, Deputy Director of Income Tax (INV), the respondent No. 5 had issued an order to the Branch Manager of the appellant-bank directing the appellant-bank to revoke the restraint put on the bank accounts of Sunita Khemka and three other persons, in view of the restraining order dated October 5, 2021 passed under Section 132(3) of the IT Act. Accordingly, the said persons, including Sunita Khemka, were to be allowed to operate their bank accounts. The said order was received by the concerned Branch Manager of the appellant-bank on November 8, 2021 at 4:00 p.m. However, on November 2, 2021 at 11:24 a.m., an email was sent to the Branch Manager which contained the same order. Thereafter, on November 9, 2021, the concerned branch of the appellant-bank allowed Sunita Khemka to operate her bank locker bearing No. 462 and proper entries recording the operation of the locker were made in the bank’s records. After that on November 20, 2021, Respondent No. 5 conducted a search and seizure operation at the aforementioned bank locker in the concerned branch of the appellant-bank wherein it was found that Sunita Khemka had operated her bank locker with the assistance of the concerned officers of the appellant-bank. This was validated by the entry made in the bank’s records and the CCTV footage of the bank. 

As a result, the concerned officials of the aforementioned branch of the appellant-bank were found to have breached the restraining order dated October 5, 2021. On November 20, 2021, Respondent No. 5 issued summons under Section 131(1A) of the IT Act to Abha Sinha-Branch Manager, Abhishek Kumar-Branch Operation Manager and Deepak Kumar-Teller Authoriser being the concerned officials of the appellant-bank. These officials attended the office of Respondent No. 5 and their statements were recorded wherein Abha Sinha and Abhishek Kumar stated that there had been an inadvertent error on the part of the bank officials and they had misinterpreted the order dated November 1, 2021. Since the said order pertained to the bank accounts of the concerned individuals including Sunita Khemka, the bank officials had misread the order to understand /assume that the revocation of the restraint extended to the bank lockers as well. Having misunderstood the order, the bank officials under a bona fide assumption that bank locker had been released as well, allowed Sunita Khemka to operate the same. The statement of Sunita Khemka was also recorded wherein she stated that her accountant Surendra Prasad, after speaking with Deepak Kumar, had informed her that the restraint on the aforementioned bank locker had been revoked and she could operate the said locker. This was specifically denied by Deepak Kumar in his statement. Dissatisfied with the said explanations, Respondent No. 5 submitted a written complaint to the SHO, Gandhi Maidan Police Station seeking to register an FIR against Sunita Khemka and the concerned bank officials on the ground that the order dated October 5, 2021 had been violated owing to the unlawful operation of the aforementioned locker. 

On the basis of the complaint, an FIR was registered against Sunita Khemka and the staff of the appellant-bank on November 22, 2021 for the offences punishable under Sections 34, 37, 120B, 201, 207, 217, 406, 409, 420 and 462 of the IPC. HDFC bank preferred a Criminal Writ Jurisdiction Case to invoke the inherent power of the High Court under Section 482 of the Code of Criminal Procedure, 1973 for the quashing of the FIR. The High Court had dismissed the writ petition finding it to be devoid of merit.

The Supreme Court's judgement reads:"In the present case, the FIR does not show that the appellant-bank had induced anyone since inception. For bringing out the offence under the ambit of Section 420 IPC, the FIR must disclose the following ingredients: (a) That the appellant-bank had induced anyone since inception; (b) That the said inducement was fraudulent or dishonest; and (c) That mens rea existed at the time of such inducement."

It observed: "The appellant-bank is a juristic person and as such, a question of mens rea does not arise. However, even reading the FIR and the complaint at their face value, there is nothing to show that the appellant-bank or its staff members had dishonestly induced someone deceived to deliver any property to any person, and that the mens rea existed at the time of such inducement. As such, the ingredients to attract the offence under Section 420 IPC would not be available."

With regard to the provisions of Section 409 of IPC, the following ingredients will have to be made out:
(a) That there has been any entrustment with the property, or with any dominion over property on a person in the capacity of a public servant or banker, etc.; (b) That the said person commits criminal breach of trust in respect of that property.

For bringing out the case under criminal breach of trust, it will have to be pointed out that a person, with whom entrustment of a property is made, has dishonestly misappropriated it, or converted it to his own use, or dishonestly used it, or disposed of that property.

The Court noted that "In the present case, there is not even an allegation of entrustment of the property which the appellant-bank has misappropriated or converted for its own use to the detriment of the respondent No.5. As such, the provisions of Section 406 and 409 IPC would also not be applicable." It also noted that "since there was no entrustment of any property with the appellant-bank, the ingredients of Section 462 IPC are also not applicable."

The Court observed that "since the offences under Section 206, 217 and 201 of the IPC requires mens rea, the ingredients of the said Sections also would not be available against the appellant-bank. The FIR/complaint also does not show that the appellant-bank and its officers acted with any common intention or intentionally cooperated in the commission of any alleged offences. As such, the provisions of section 34, 37 and 120B of the IPC would also not be applicable."

The Court relied on the observations made in the case of State of Haryana and others v. Bhajan Lal and others (1992). It observed: “In the backdrop of the interpretation of the various relevant provisions of the
Code under Chapter XIV and of the principles of law enunciated by this Court in a series of decisions relating to the exercise of the extraordinary power under Article 226 or the inherent powers under Section 482 of the Code which we have extracted and reproduced above, we give the following categories of cases by way of illustration wherein such power could be exercised either to prevent abuse of the process of any court or otherwise to secure the ends of justice, though it may not be possible to lay down any precise, clearly defined and sufficiently channelised and inflexible guidelines or rigid formulae and to give an exhaustive list of myriad kinds of cases wherein such power should be exercised.
(1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.
(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.
(4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.
(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge."

In Bhajan Lal's case, the Supreme Court said: "We also give a note of caution to the effect that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarest of rare cases; that the court will not be justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR or the complaint and that the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the court to act according to its whim or caprice.” 

Notably, High Court too had referred to the decision in the Bhajan Lal case. Drawing on Court's decision in Pratibha Rani v. Suraj Kumar [(1985)2 SCC 370], the High Court had noted that while exercising its power to quash an FIR or a complaint, the High Court would have to proceed entirely on the basis of the allegations made in the complaint or the documents accompanying the same per se. It has no jurisdiction to examine the correctness or otherwise of the allegations. It had also relied on the decision in the case of State of Kerala v O.C. Kuttan [(1999)2 SCC 251], wherein the Supreme Court held that the power of quashing the criminal proceedings was to be exercised very sparingly and the Court was not to embark upon an inquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR or the complaint. It recalled the judgment in Superintendent of Police, CBI v. Tapan Kumar Singh [(2003) 6 SCC 175] wherein the Supreme Court has held that the first information report is not an encyclopedia, which must disclose all facts and details relating to the offence reported. What was significant was that the information given must disclose the commission of a cognizable offence and the information so lodged must provide a basis for the police officer to suspect the commission of a cognizable offence. It also took note of in M/s Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra and others (judgment dated 13.4.2021 in Criminal Appeal no. 330 of 2021) wherein the Supreme Court held that it cannot thwart an investigation into a cognizable offences which is the statutory right and duty of the police under the Code of Criminal Procedure. The Court also cannot embark upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the FIR/complaint and quashing of a complaint/FIR should be an exception which is exercised sparingly with circumspection.

In the HDFC case, unlike the High Court, the Supreme Court observed: "We find that the present case would squarely fall within categories (2) and (3) of the law laid down by this Court in the case of Bhajan Lal and others (supra)." It stopped continuation of the criminal proceedings against the appellant-bank.