Recently, the Punjab and Haryana High Court delivered an important ruling in a case involving M/s Tara Corporation Limited (hereinafter “TCL”), a company facing investigations under the Prevention of Money Laundering Act (hereinafter “PMLA”), faced custodial remand orders issued by a Special Court. The High Court examined the legality of these orders, emphasizing the importance of adhering to procedural safeguards and protecting individual rights, ultimately quashing the remand orders and highlighting the need for judicial scrutiny in such matters.
Brief Facts:
TCL, incorporated on November 16, 2010, and later renamed Malaudh Agro Limited, was engaged in the trading of cattle feed. The company availed a credit facility of Rs. 35 crore from the Bank of India in September 2011, which was later increased to Rs. 46 crore. TCL defaulted on its loan repayment, leading to an outstanding amount of Rs. 40.92 crore. The account was declared a Non-Performing Asset (hereinafter referred to as “NPA”) in 2014. Attempts to settle the dues through a One-Time Settlement (hereinafter referred to as “OTS”) failed, and TCL was declared a ‘Wilful Defaulter’. In response, TCL filed a petition, which resulted in the quashing of the ‘Wilful Defaulter’ declaration by a 2020 court order.
However, the Bank of India later filed a complaint with the Central Bureau of Investigation (hereinafter referred to as “CBI”), leading to an FIR being registered against TCL and its associates in March 2022. The Enforcement Directorate (hereinafter referred to as “ED”) subsequently investigated the case under the Prevention of Money Laundering Act (hereinafter referred to as “PMLA”), and an Enforcement Case Information Report (hereinafter referred to as “ECIR”) was filed. The petitioner faced non-bailable warrants of arrest, and after several legal proceedings, including a request for cancellation of warrants, he was remanded to ED custody in October 2024.
Contentions of the Petitioner:
The petitioner contended that during the investigation, the ED chose not to arrest him, his brother Kulwant Singh, or his nephew Tejinder Singh, despite arresting co-accused Jaswant Singh under Section 19 of the PMLA. The petitioner argued that the complaint filed under PMLA did not seek his arrest but only a request for cognizance of the offence. He further asserted that the Special Court correctly accepted their application for the cancellation of non-bailable warrants and directed them to furnish personal bonds, in line with Supreme Court precedents. The petitioner claimed that the ED's request for custodial remand was based on previous material and not on new evidence, and that the Special Court’s subsequent orders could not be revisited, as it would violate Section 362 of the Code of Criminal Procedure.
Contentions of the Respondent:
The learned Additional Solicitor General argued that TCL fraudulently availed a loan of Rs. 46 crore by providing false share capital and fictitious turnovers, with the funds being misused and diverted to sister concerns and shell companies. This diversion caused a loss of Rs. 41 crore to the public exchequer. Despite several summons issued to the petitioner between June 2023 and January 2024, the petitioner failed to join the investigation, justifying the Special Court’s decision to grant his custody to the ED. The respondent also contended that the ongoing investigation into the co-accused necessitates the petitioner’s custody for further probe. The respondent maintained that all remand orders were in accordance with the law as established in the Tarsem Lal v. Directorate of Enforcement, Jalandhar, (2024).
Observation of the Court:
The Court observed that the ED sought custodial interrogation of the petitioner, arguing his evasive conduct during the investigation. However, the Court noted that after taking cognizance, the ED did not send a notice to the petitioner under Section 50 of PMLA nor requested the Special Court for further investigation under Section 44(1)(d), suggesting that the ED's intent was to secure custodial interrogation rather than conduct further investigation.
Section 44 of the PMLA stipulates that when a Special Court is trying a scheduled offence or a money-laundering offence, the trial must be conducted in accordance with the provisions of the Code of Criminal Procedure, as they apply to trials before a Court of Session. The Court stated "Here, it would be relevant to emphasize that the Judicial Officer(s), who have been assigned the task of Special Court under PMLA, is/are not supposed to act as an extended arm of the ED and pass the remand order against the suspect as a matter of course,".
Additionally, the Court criticized the Special Court’s decision to authorize custodial interrogation, stating, "It appears that learned Special Court has accepted the prayer of ED in a routine manner and authorized the custodial interrogation while negating the salutary protection emanating from Article 21 of the Constitution." The Court emphasized that the Special Court failed to properly apply the law, particularly Section 44 of PMLA and Section 309 of the Criminal Procedure Code, which outlines the conditions for custodial remand.
The Court also pointed out the lack of justification for the repeated remand orders, noting that “the Special Court had failed to consider the drastic consequences and negated the rule of law." It highlighted the failure to meet the conditions for remand as stipulated in Section 309, where ‘sufficient evidence’ must be obtained to raise a suspicion that the accused may have committed an offence, was not established in this case.
The decision of the Court:
The Court held that the impugned “order dated 05.10.2024 for custodial interrogation as well as subsequent orders for judicial custody have been passed by learned Special Court without application of judicial mind; hence, indefensible in law". As a result, the Court allowed the petition and quashed the order dated 05.10.2024, along with the subsequent orders remanding the petitioner to judicial custody.
Case Title: Balwant Singh v. Directorate of Enforcement
Citation: Criminal Writ Petition No. 9783 of 2024
Coram: Hon'ble Mr. Justice Mahabir Singh Sindhu
Advocate for Petitioner: Adv. Vikram Chaudhri assisted by Adv. Keshavam Chaudhri, Adv. Hargun Sandhu, and Adv. Gorav Kathuria
Advocate for Respondent: Adv. Satya Pal Jain, Addl. Solicitor General of India (through V.C.) assisted by Adv. Meghna Malik
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