Supreme Court overturns Patna High Court bail in PMLA case for ignoring Section 45 twin conditions

Background of the dispute

In Union of India Vs Kanhaiya Prasad, the Supreme Court examined whether the Patna High Court was justified in granting bail in a prosecution under the Prevention of Money Laundering Act, 2002 (PMLA) without adhering to the stringent requirements of Section 45.

The appeal was filed by the Union of India through the Enforcement Directorate (ED), challenging an order dated 06.05.2024 by the High Court of Judicature at Patna in Criminal Miscellaneous No. 17738/2024, whereby the respondent, Kanhaiya Prasad, had been released on regular bail in Special Trial (PMLA) Case No. 8 of 2023, arising out of ECIR No. PTZO/14/2023.

The underlying allegations stemmed from a larger investigation into illegal sand mining operations in Bihar and consequential money laundering activities involving substantial proceeds of crime.

FIRs, scheduled offences and initiation of PMLA proceedings

Multiple FIRs in Bihar

ED’s case originated from around 20 FIRs registered at various Police Stations in Patna, Saran and Bhojpur districts. These FIRs invoked:

  • Sections 38, 120B, 378, 379, 406, 409, 411, 420, 467, 468 and 471 of IPC, and
  • Section 39(3) of the Bihar Mineral (Concession, Prevention of Illegal Mining, Transportation & Storage) Rule, 2019.

The core allegation was that M/s Broad Son Commodities Private Ltd and its Directors were engaged in:

  • illegal extraction and sale of sand
  • without using departmental pre-paid transportation e-challans issued by the Mining Authority, Bihar

This allegedly caused a revenue loss of Rs.161,15,61,164/- to the State exchequer.

Since the FIRs involved scheduled offences as per Section 2(1)(y) of PMLA, the ED registered:

  • ECIR No. ECIR/PTZO/14/2023 dated 15.03.2023, and
  • addendum ECIRs dated 08.11.2023 and 04.05.2024

and commenced investigation for the offence of money laundering under PMLA.

Investigation by ED and arrest of the respondent

Searches and statements under PMLA

In the course of investigation, ED conducted searches under Section 17 of PMLA at multiple premises connected to the company, its Directors and related persons. Among these were four premises belonging to Radha Charan Sah, father of the respondent.

During inquiry, the ED recorded statements under Section 50 of PMLA:

  • of the respondent, Kanhaiya Prasad, on 01.09.2023 and 04.09.2023
  • of his father and other witnesses

ED’s case was that, based on documents seized from the premises of Radha Charan Sah and these statements, the role of the respondent in dealing with proceeds of crime became evident.

Summons and arrest

The respondent was summoned to appear before the ED on:

  1. 11.09.2023
  2. 12.09.2023
  3. 13.09.2023

According to ED, he did not appear on those dates. Subsequently, he was arrested on 18.09.2023 at the ED’s Patna Zonal Office. On being produced before the jurisdictional court, his custody was handed over to ED on 22.09.2023.

Alleged role of the respondent and Prosecution Complaint

Allegations regarding proceeds of crime

Based on the seized material and recorded statements, ED alleged that the respondent:

  • was involved in possessing and concealing proceeds of crime totalling Rs.17,26,85,809/-
  • used these funds for:
    • renovation of a resort at Manali
    • construction of a school owned by a family trust

Further, ED alleged:

  • The respondent handled proceeds of crime generated by his father, who was allegedly part of a syndicate engaged in illegal sand sale.
  • Proceeds of crime were routed through hawala channels to:
    • acquire the Manali resort, and
    • project illicit funds as legitimate income by funnelling them through family-run LLPs and an entity named Maa Sharda Devi Buildings and Construction.
  • Properties were acquired and construction/renovation works undertaken using these tainted funds to disguise their illicit origin.

Prosecution Complaint under PMLA

ED filed a Prosecution Complaint on 10.11.2023 against the respondent and others for offences punishable under:

  • Section 3 read with Section 4 of PMLA

The role of the respondent was specifically spelt out in paragraph 11.6 of the complaint. On the same day, the Special Court under PMLA took cognizance of the offences.

Thereafter, the respondent approached the Patna High Court seeking regular bail in connection with the said Prosecution Complaint (Special Trial (PMLA) Case No. 8/2023). The High Court allowed his bail application by the impugned order.

Arguments before the Supreme Court

Submissions on behalf of ED (Appellant)