SANJAY RAGHUNATH AGARWAL versus THE DIRECTORATE OF ENFORCEMENT

[2023] 5 S.C.R. 461

SANJAY RAGHUNATH AGARWAL

THE DIRECTORATE OF ENFORCEMENT

(Criminal Appeal No. 1198 of 2023)

APRIL 20, 2023

[V. RAMASUBRAMANIAN AND PANKAJ MITHAL, JJ.]

Bail – criminal complaint u/ss. 406, 407, 415 to 420, 120Br/w s.34 IPC was filed against six persons, including the appellant– Complaint was, that Farmax India Ltd. availed the services of theaccused in raising Global Depository Receipts (GDRs), to the tuneof INR 318 crores; that though the accused raised the said amount,they transferred to Farmax only sum of INR 2.20 crores – Accordingto the Enforcement Directorate, the appellant and the others hadcommitted the offence of money-laundering – Enforcement CaseInformation Report (ECIR) was lodged – Appellant was arrested on26.09.2022 – Enforcement Directorate also filed prosecutioncomplaint u/ss. 44 and 45 of Prevention of Money-laundering Act,2002 – From 26.09.2022 appellant was in jail – Held: ECIR andthe lodging of the prosecution complaint in the year 2022 were asequel to the registration of the FIR filed in 2013 – No final reportfiled in the FIR for the predicate offence, for the past nine years –De-facto complainant in the FIR for the predicate offence, wassought to be arrested as an accused in connection with the ECIR,but the application of the Enforcement Directorate for remand wasrejected – Prosecution complaint filed by the EnforcementDirectorate, gives room for valid argument that the secondcondition found in Clause (ii) of sub-section (1) of Section 45 ofPMLA is satisfied qua the appellant – The continued incarcerationof the appellant not justified – Appellant directed to be enlarged onbail.

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.1198 of 2023.

From the Judgment and Order dated 07.12.2022 of the High Courtfor the State of Telangana at Hyderabad in CRLP No. 9695 of 2022.

AR. Basant, Sr. Adv., M/s. Shakil Ahmad Syed, Tanmaya Mehta,Syed Ahmed Saud, Lalit Valecha, Daanish Ahmed Syed, Mohd ParvezDabas, Uzmi Jameel Husain, Aqib Baig, Advs. for the Appellant.

S. V. Raju, ASG, Mukesh Kumar Maroria, Zoheb Hussain, AnnamVenkatesh, Ashok Panigrahi, Ms. Sairica Raju, Advs. for the Respondent.BThe Judgment of the Court was delivered by

PANKAJ MITHAL, J.

1. Leave granted.

2. Heard Shri R. Basant, senior counsel and Shri S.V. Raju, learnedCAdditional Solicitor General for the parties.

3. criminal complaint in FIR No.664/2013 was registered on29.10.2013 with the Cyberabad Police, against six persons, including theappellant herein for alleged offences under Sections 406, 407, 415 to420, 120B read with Section 34 IPC. The FIR was registered on theDbasis of complaint lodged by one M. Srinivas Reddy, who was theManaging Director of Company by name M/s Farmax India Limited[1].The gist of the complaint was, that Farmax availed the services of theaccused in raising Global Depository Receipts (GDRs), to the tune ofUSD 71.09 millions equivalent to INR 318 crores; that though the accusedraised the said amount, they transferred to Farmax only sum of USDE0.4 millions equivalent to INR 2.20 crores; and that upon enquiry withthe bank, the complainant company came to know that the accused hasmisappropriated the balance amount by forging the signatures, with thehelp of the pledged documents.

4. It is relevant to note here that the aforesaid FIR was registered,Fpursuant to an Order passed by the VI Metropolitan Magistrate,Cyberabad at Medchal, Rangareddy District, under Section156(3) ofthe Code of Criminal Procedure, 1973.

5. Though the FIR was registered more than nine years ago, nofinal report has been filed so far. However, the raising of GDR by FarmaxGbecame the subject matter of enquiry by Securities and Exchange Boardof India[2]. SEBI passed an Order dated 14.07.2020 holding that therewere violations of various provisions of Securities and Exchange Board

1 hereinafter referred to as “Farmax”

2 For Short “SEBI”

of India Act, 1992 and various regulations of Securities and ExchangeBoard of India (Prohibition of Fraudulent and Unfair Trade Practicesrelating to Securities Market) Regulations, 2003. More particularly, SEBIfound one Mr. Arun Panchariya and few others guilty of misleadingIndian investors through 14 identical GDR issues involving fraudulentschemes.

6. Pursuant to the aforesaid, the Enforcement Directorate filedan information report in ECIR No.HYZO/26/2022 dated 05.05.2022,naming six individuals and nine entities, as persons suspected ofcommitting the offence of money-laundering under Section 3 of thePrevention of Money-laundering Act, 2002[3].

7. After the lodging of the Enforcement Case Information Report,the appellant was arrested by the Enforcement Directorate on 26.09.2022.By an Order dated 27.09.2022, the appellant was remanded to judicialcustody by the Metropolitan Sessions Judge, Hyderabad. The Court alsogranted the custody of the appellant to the Enforcement Directorate fora period of six days from 06.10.2022 to 11.10.2022.

8. Subsequently, the Enforcement Directorate filed prosecutioncomplaint under Sections 44 and 45 of PMLA against four individualsand two entities, namely, (i) Shri Sanjay Aggarwal, (ii) Shri MorthalaMalla Reddy, (iii) Shri Arun Panchariya, (iv) Shri Mukesh Chauradiya,(v) M/s La Richesse Advisors Private limited represented by Shri SanjayAggarwal and (vi) M/s Vintage FZE, UAE represented by Shri ArunPanchariya. The sum and substance of the complaint was, that Farmaxavailed the services of the appellant herein and the other accused inraising GDRs to the tune of USD 71.09 millions equivalent to INR 318crores; that Vintage FZE, wholly owned entity of Arun Panchariyasolely subscribed to these GDRs, after availing loan from EURAMBank, under loan agreement dated 05.05.2020; that Farmax executeda pledge agreement with EURAM Bank, undertaking that the entireproceeds will be pledged to secure the loan granted by EURAM Bank;that though Farmax issued GDRs, the proceeds were not credited toFarmax’s credit in India, as the same had been kept as collateral; thatVintage FZE repaid only part of the loan and, hence, the balance amountalone got released by the bank to Farmax; that this diversion of fundscaused loss to Farmax to the extent of USD 15.60 millions; that the

3 For short “PMLA”

AGDRs were thereafter converted into equity shares and sold in the IndianStock Market; that when Farmax was advised by the appellant to go forGDRs, Farmax was not eligible for the amount of GDR; that therefore,the appellant herein and the entity owned by him took the lead role incoordinating the offering; that the appellant was the central figure in theentire drama; that the appellant is qualified Chartered Accountant,Bhaving had experience of working with stock exchange filings related toGDRs; that the appellant was introduced by Arun Panchariya to SrinivasReddy; and that the appellant and the others had committed the offenceof money-laundering.

9. According to the Enforcement Directorate, the appellant wasCresponsible for creating the entire infrastructure for Farmax and ArunPanchariya to bring about the fraudulent GDR issue and that the appellantprovided formats for Board Resolutions and also helped in transferringthe funds from the account of Farmax with EURAM Bank to the Farmaxsubsidiary, namely, M/s. Farmax International FZE in UAE.D

10. In the background of the above facts, it is contended by ShriR. Basant, learned senior counsel: (i) that the appellant has beenlanguishing in jail from 26.09.2022, without any charge-sheet having beenfiled against him in the predicate offence for the past more than nineyears; (ii) that even Srinivas Reddy at whose instance FIR wasEregistered way back in the year 2013 for the predicate offence wasarrested by the Enforcement Directorate, but the application filed by theEnforcement Directorate for his remand was rejected by the Court; (iii)that the appellant is Chartered Accountant by profession and that heoffered only professional services within the framework of law; and (iv)that there is nothing in the prosecution complaint to show that the appellantFis in possession of “the proceeds of crime”.

11. However, it is contended by Shri S.V. Raju, learned AdditionalSolicitor General (i) that the appellant is the kingpin and the master mindbehind all the transactions; and (ii) that the petition for bail deserves tobe dismissed in view of the twin conditions prescribed in Section 45 ofGPMLA.

12. We have carefully considered the rival contentions.

13. Since the main contention of the learned Additional SolicitorGeneral revolves around Section 45 of PMLA, it is necessary to see theHspecific role assigned to the appellant in the prosecution complaint lodged

by the Enforcement Directorate. The relevant portion of paragraph 8 ofthe prosecution complaint reads as follows:

“SPECIFIC ROLE OF THE ACCUSED/ CO-ACCUSEDPERSONS IN THECOMMISSION OF OFFENCE OFMONEY LAUNDERING IN TERMS OFSECTION 3 OFPMLA:

•--Role of Shri Sanjay Aggarwal (A1):

a)Based on Sanjay Agarwal’s assurances, M/s FarmaxIndia Limited decided to proceed with plans for aGDR listing. At this point of time M/s Farmax IndiaCLimited was not eligible for USD 72.20 million GDR.Sanjay Agarwal and M/s La Richesse, accompaniedby Nitish Bangera took the lead role coordinating theoffering. Sanjay Agarwal decided on all theparticipants, including the Lead Arranger (ProspectCapital) and the company’s legal advisor (“FoxDMandal”). Although, Fox Mandal acted as counselto Farmax, the email communications indicate thatits role was limited to preparing due diligence reportand the Listing Prospectus (“Prospectus”) to be filedwith the Luxembourg Exchange.

b)Sanjay Agarwal acted as an intermediary for almostall communications with the various participants, andgave instructions to M/s Farmax India Limitedbefore and after the offering. Notwithstanding thatAgarwal was the central figure who gaveFinstructions to Farmax which was duly followed byMorthala Srinivasa Reddy. (A-1) being qualifiedChartered Accountant, had experience of workingwith stock exchange filings related to GDRs, andwas introduced by Arun Panchariya to MD ofFarmax Ltd, Shri M. Sreenivasa Reddy. (A-1) byGrepresenting Arun Panchariya’s firm ProspectCapital before the depositary, the Bank of New Yorkand being well aware of the relation ArunPanchariya had with EURAM Bank insisted allcompanies going through GDR to open bank

Aaccount in that particular bank, (A-1) being wellaware of the arrangement between ArunPanchariya and the Company promoters to sharethe proceeds of GDR, took the lead role ofcoordinating the offering, by purposely hiding thesubscriber list from submitting to Ahmedabad StockBExchange and hence was directly involved in theprocess and activity connected with the proceedsof crime including its acquisition and hence hascommitted the offence of money-laundering asdefined under section 3 of PMLA, 2002 and is liableCfor punishment under Section 4 of PMLA, 2002.”

14. Keeping in mind the specific role attributed to the appellant,let us now revert back to the facts pleaded and arguments advanced. Atthe outset, there is no controversy about the following facts:

(i)that the registration of the ECIR and the lodging of theDprosecution complaint in the year 2022 were sequel tothe registration of the FIR for the predicate offence, wayback in the year 2013, at the instance of one M. SrinivasReddy, Managing Director, Farmax and also sequel tothe order passed by SEBI in the year 2020;E

(ii)that no final report has been filed in the FIR for the predicateoffence, for the past nine years;

(iii)that even M. Srinivas Reddy, the de-facto complainant inthe FIR for the predicate offence, was sought to be arrestedas an accused in connection with the ECIR, but theFapplication of the Enforcement Directorate for remand wasrejected;

(iv)that the appellant is Chartered Accountant by professionand has been in jail from 26.09.2022; and

G(v)that the relevant portion of paragraph 8 of the prosecutioncomplaint filed by the Enforcement Directorate, which wehave extracted in the preceding paragraph, gives room fora valid argument that the second condition found in Clause(ii) of sub-section (1) of Section 45 of PMLA is satisfiedqua the appellant.

Therefore, the continued incarceration of the appellant, in ouropinion, may not be justified.

15. However, the apprehension of the Enforcement Directoratethat the appellant is flight-risk and may go out of the country if releasedon bail, has to be taken care of by imposing appropriate conditions.

16. In view of the above, the appeal is allowed and the appellantis directed to be enlarged on bail in ECIR No.HYZO/26/2022 dated05.05.2022, subject to such terms and conditions as may be imposed bythe Metropolitan Sessions Judge-cum-Special Court under PMLA,Nampally, Hyderabad. The conditions to be imposed by the Special Courtshall include the following additional conditions:

(i)The appellant shall surrender his passport before the SpecialCourt; and

(ii)The appellant shall regularly appear before the Special Courtwithout fail whenever the prosecution complaint filed byED is posted.D

The appeal is allowed on the above terms. No costs.

Ankit Gyan

Appeal allowed.