Sanjay Raghunath Agarwal v. Directorate of Enforcement · [2023] 5 SCR 461

The PMLA prosecution in its transaction setting

A company engaged the accused to help raise money through global depository receipts, after which its managing director complained that a very large sum raised in the offering had not reached the company. The original police case alleged offences under the Indian Penal Code, including dishonest handling of property, cheating and conspiracy, while the company said that signatures had been forged in connection with the pledged documents used in the financing arrangement.

The police registered that case following a Magistrate's order under Section 156(3) of the Code of Criminal Procedure, 1973. Although the registration dated from 2013, the judgment records that no final report had been filed in that predicate investigation when the Supreme Court considered the appellant's bail appeal more than nine years later.

The first complainant described an issue of receipts worth approximately USD 71.09 million and asserted that only about USD 0.4 million had been transferred to the company. Those figures belong to the original complaint, whereas the enforcement prosecution later described a loss of approximately USD 15.60 million after explaining the financing and partial repayment of the loan, so the two accounts should not be flattened into one judicial finding about the sum lost.

The securities regulator separately examined the depository receipt issue and made findings in 2020 concerning securities law violations and a wider pattern of similar offerings. The Directorate of Enforcement then registered its money-laundering case in 2022 under the Prevention of Money-laundering Act, 2002, building upon the earlier police case and the regulatory action rather than upon a completed final report in the predicate case.

That sequence did not persuade the Supreme Court to determine whether the original police allegations or the securities regulator's findings would survive every later challenge. It supplied the procedural setting in which the Court had to decide whether the enforcement prosecution's individual allegation, despite the age and incompleteness of the predicate investigation, justified keeping this particular accused in custody pending further proceedings.

The alleged movement of the offering proceeds

According to the prosecution complaint, an overseas entity subscribed to the receipts using a bank loan, while the issuing company had pledged the proceeds as security for that borrowing. Because the money remained with the bank as collateral and the borrowing was only partly repaid, the complaint alleged that the company received only the released balance and suffered a substantial loss.

That prosecution account was more detailed than a bare assertion that the appellant held money personally. It described his alleged coordination of the offering, the selection of participants, the preparation of board-resolution formats, his communications with the company and the arrangements that directed the issuing company toward the bank used for the financing.

The complaint also alleged that he knew of an arrangement to share proceeds, kept a subscriber list from the relevant exchange and participated in activity connected with the proceeds of crime, including their acquisition. These were accusations in the enforcement case, not findings of guilt made by the Supreme Court in a bail proceeding, and their precise connection with Section 3 of the Act was central to the Court's examination.

The prosecution described the overseas subscriber as having borrowed from a bank before taking up the receipts, with the company's own proceeds pledged against that borrowing. It further alleged that the receipts were converted into equity shares and sold in the Indian market, a further step in the transaction narrative that explained why the complaint examined the offering infrastructure rather than only the amount left in a bank account.

Why the attributed role mattered under Section 45

The Directorate resisted release by invoking the twin conditions in Section 45 of the PMLA and by characterising the appellant as the organising figure behind the transactions. Rather than treating that characterisation as a substitute for analysis, the Court turned to the portion of the prosecution complaint that assigned specific conduct to him, so that the statutory objection could be assessed against the prosecution's own account.

The Court did not hold that a chartered accountant's work can never constitute money-laundering, nor did it decide that the alleged global depository receipt arrangement was lawful. It considered the appellant's claimed professional role together with the complaint's allegation that he had coordinated the issue and its participants, leaving the trial court to resolve whether the accusations could ultimately be proved.

After setting out the assigned role, the judgment states that the complaint gave room for a valid argument that the second condition in Section 45(1)(ii) was satisfied in this appellant's case. That carefully limited expression did not finally determine his innocence, and it did not replace the statutory conditions with an automatic right to bail whenever a predicate case remains pending.

The unusual state of the predicate investigation

The Court identified several circumstances it regarded as uncontroversial, beginning with the gap between the 2013 police registration and the later money-laundering case. The older FIR still lacked a final report after nine years, a delay which the appellant placed beside his detention from September 2022 while asking whether continued custody was justified.

Another circumstance was that the person who had originally complained to the police on behalf of the company had himself been sought for arrest in the enforcement case, although the enforcement agency's request for his remand had been rejected. The judgment recorded that fact as part of the procedural background rather than as a general rule that equal treatment required the appellant's release.

The appellant further submitted that his work was professional and that the prosecution complaint did not show him in possession of proceeds of crime. The Court did not decide that personal possession was the only possible route to the offence, but evaluated the prosecution's pleaded role, the incomplete predicate investigation and the period of custody before finding continued incarceration unjustified on this record.

His detention had begun with an arrest by the Directorate in September 2022, followed by judicial remand and a later period of enforcement custody authorised by the court. By the time the Supreme Court decided the appeal, the enforcement prosecution complaint had been filed, yet the much older police case underlying the alleged scheduled offence still awaited a final report, which made the duration and procedural balance of continued incarceration a concrete concern rather than a general appeal for leniency.

Release with safeguards rather than an unqualified order

The Directorate argued that release would create a risk that the appellant might leave India. The Court addressed that concern through restrictions attached to bail, directing him to surrender his passport before the Special Court and to appear there regularly whenever the enforcement prosecution complaint was listed.

The Metropolitan Sessions Judge acting as the PMLA Special Court was left to impose the remaining appropriate terms and conditions. The Supreme Court allowed the appeal and ordered release in the identified enforcement case subject to those terms, without deciding the pending predicate allegations or granting immunity from the money-laundering prosecution.

The significance of the decision lies in that sequence of scrutiny. The special bail condition remained central, yet its application required attention to what the complaint actually attributed to the accused, how the related proceedings had developed and whether conditions could address a concrete risk associated with release.