Delhi High Court: In a petition seeking to quash the arrest memo and arrest order for the petitioner on 09-07-2024 and consequent remand orders, a Single Judge Bench of Anish Dayal, J., after careful perusal of the grounds of arrest and remand orders, stated that the assessment of the arresting officer that there was a necessity to arrest in July 2024 could not be faulted. The Court observed that there were substantial reasons summarized in the grounds of arrest which prima facie pointed to a large-scale diversion of public money through complex corporate transactions, intra-group financial management, potentially benami properties, lower-rung employees being appointed as directors, numerous shell companies, centralisation of control with the petitioner and his family, the inability to shore up the huge amounts of loan even during the insolvency proceedings despite personal guarantees.
Thus, the Court stated that the petitioner’s arrest did not fall foul of provision of Section 19 of the Prevention of Money Laundering Act, 2002 (‘PMLA’), and that judicial review of the grounds for arrest did not invite an adverse inference from this Court.
Background
The petitioner was a 63-year-old former promoter of Amtek Auto Ltd. (‘AAL’) which, over a period of time, burgeoned into various subsidiary and sister companies, that were broadly referred to as the ‘Amtek Group’. Post global slowdown in 2008, Amtek faced liquidity constraints which led to delay in meeting loan payments and commitments to interest.
On 15-03-2016, ACI Ltd. (‘ACIL’) was declared a Non-Performing Account (‘NPA’) by IDBI Bank Subsequently in 2018, the Bank of Maharashtra also declared it as Non-Performing Asset (‘NPA’). Meanwhile, the Corporate Insolvency Resolution Proceedings (‘CIRP’) was initiated against AAL and other associate companies in 2017-2018. ACIL, petitioner, and other entities were declared ‘wilful defaulter’ by IDBI Bank on 25-07-2018, which was subsequently stayed by the Bombay High Court vide order dated 24-10-2018. A preliminary Forensic Audit Report (‘FAR’) and vide letter, the Forensic Auditor clarified that no angle of fraud was discovered. A FAR was conducted in 2020 for AAL by KG Somani and Co. (‘KGS’) and no finding of ‘fraud’ was reported. Similar was the case for Castex Technologies Ltd (‘Castex’).
On 21-12-2022, a FIR was registered by CBI against ACIL on IDBI’s complaint under Sections 4201, 4062, 4683, and 120-B4 of the Penal Code, 1860 (‘IPC’) and Section 13(2) and 13(1)(d) of the Prevention of Corruption Act, 1988 (‘PC Act’) where the petitioner was arraigned as an accused. On 29-12-2022, another FIR was registered by CBI against ACIL and AAL on the complaint of Bank of Maharashtra under Sections 420, 4095, and 120-B of IPC and Section 7(c) of the PC Act; petitioner was arraigned as an accused.
Consequently, on the basis of these FIRs, the Directorate of Enforcement (‘ED’) registered two Enforcement Case Information Report (‘ECIR’) 21-03-2023. A PIL was filed before the Supreme Court, directing ED to carry out the investigation concerning the Amtek Group. ED made a request to CBI seeking material i.e. charge-sheet and relied upon documents in the FIR, which was rejected by the CBI. An application was moved by the ED before Special Judge (PMLA), seeking copy of FIR along with charge-sheet and other relevant documents. On 26-07-2024, Special Judge (PMLA) rejected the said application.
Thereafter, pursuant to the summons order issued under Section 50 of PMLA, the petitioner appeared before the ED, and his statement was recorded. On 20-06-2024, ED carried out search and seizure proceedings at petitioner’s residence and subsequently, the petitioner was asked to appear on 09-07-2024, on which day he was arrested. On 10-07-2024, petitioner was remanded to ED custody for 7 days. Subsequently, other remand orders were also passed.
Analysis, Law, and Decision
The Court clarified that the present petition was not filed praying for enlarging the petitioner on bail, rather it was filed for challenging the validity of arrest of petitioner under Section 19 of the PMLA. The Court stated that the power to arrest a person without a warrant from the Court was a drastic and extreme power and had been rightly circumscribed with strict safeguards by the legislature to prevent abuse.
The Court noted that in the present case, the petitioner was arrested on 09-07-2024 at 10:38 pm and the arrest order was issued on 09-07-2024, which noted the timing as 10:38 p.m., and that the arrestee was informed of the grounds of arrest. The grounds of arrest which accompanied the arrest order were substantially detailed. The Court stated that it was not the petitioner’s case that he was not supplied with the grounds of arrest at the time of the arrest and prior to the remand being sought. The remand application was detailed, and contained, effectively the same set of facts as were stated in the grounds of arrest.
The Court stated that the ‘reason to believe’ were not provided by the ED as a separate document since, the ED was not obligated to do so, since the arrest was in the pre-Arvind Kejriwal v. Enforcement Directorate, 2024 SCC OnLine SC 1703, period which introduced this additional condition.
The Court after careful perusal of the grounds of arrest and remand orders, stated that the assessment of the arresting officer that there was a necessity to arrest in July 2024 could not be faulted. The Court observed that there were substantial reasons encapsulated in the grounds of arrest which prima facie pointed to a large-scale diversion of public money through complex corporate transactions, intra-group financial management, potentially benami properties, lower-rung employees being appointed as directors, numerous shell companies, centralisation of control with the petitioner and his family, the inability to shore up the huge amounts of loan even during the insolvency proceedings despite personal guarantees.
The Court observed that the data on financial exposure of the petitioner’s group of companies was about Rs.30,000 odd crores and the lenders including many public banks were struggling since 2015 in order to recover the said liabilities, the process for which had culminated into insolvency proceedings where a haircut of 99.91% of the amount had been proposed by petitioner. The Court stated this had potentially led the ED to conclude that public money was utilised for unscheduled and illegal purposes, not sanctioned by the financing arrangements, the trail of which was yet to be unearthed completely.
Thus, the Court stated that sum total of the analysis was that the petitioner’s arrest did not fall foul of provision of Section 19 of the PMLA, and that judicial review of the grounds for arrest did not invite an adverse inference from this Court. The Court clarified that any observation by this Court in this judgement was only for the purposes of assessing the challenge to the legality of arrest of the petitioner and might not be construed as a conclusive opinion on the merits of the case.
[Arvind Dham v. Union of India, 2024 SCC OnLine Del 8490, decided on 02-12-2024]
*Judgment authored by- Justice Anish Dayal
Advocates who appeared in this case :
For the Petitioner: Vikram Chaudhari and Pramod Kumar Dubey, Senior Advocates with Avi Singh, Shambhu K. Thakur, Sumer Singh Boparai, Ayush Puri, Arveen Sekhon, Shikhar Garg, Ashutosh Jain, Vinayak Bhandari, Sirhaan Seth, Shobh Nath Maurya, Rishabh Basra, Vishal Singh, Sultan Jafri, Sidhant Saraswat, Ayush Sachan, Vaibhav Kapur, Muskan Sharma and Varun Bhati, Advocates.
For the Respondents: Anurag Ahluwalia CGSC, Tarveen Singh Nanda GP Hridyanshi Sharma Advocate, Zoheb Hossain, Spl. Counsel, Vivek Gurnani, Panel Counsel, and Pranjal Tripathi, Advocate with Rakesh Kumar, IO.
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1. Corresponding Section 318(4) of Nyaya Sanhita, 2023 (‘BNS’)
2. Corresponding Section 316(2) of BNS
3. Corresponding Section 336(3) of BNS
