Sanjay Raghunath Agarwal vs The Directorate Of Enforcement

CRIMINAL APPEAL NO. 1198 OF 2023 (Arising out of SLP (Crl.) No.1655 of 2023)

SANJAY RAGHUNATH AGARWAL …APPELLANT VERSUS THE DIRECTORATE OF ENFORCEMENT …RESPONDENT

JUDGMENT

PANKAJ MITHAL, J.

1. Leave granted.

2. Heard Shri R. Basant, senior counsel and Shri S.V. Raju,

learned Additional Solicitor General for the parties.

3. A criminal complaint in FIR No.664/2013 was registered on

29.10.2013 with the Cyberabad Police, against six persons,

including the appellant herein for alleged offences under Sections

406, 407, 415 to 420, 120B read with Section 34 IPC. The FIR

was registered on the basis of a complaint lodged by one M. Signature Not Verified

Srinivas Reddy, who was the Managing Director of a Company by Digitally signed by POOJA SHARMA Date: 2023.04.20 16:51:14 IST Reason:

name M/s Farmax India Limited1. The gist of the complaint was,

1hereinafter referred to as “Farmax”

1 that Farmax availed the services of the accused in raising Global

Depository Receipts (GDRs), to the tune of USD 71.09 millions

equivalent to INR 318 crores; that though the accused raised the

said amount, they transferred to Farmax only a sum of USD 0.4

millions equivalent to INR 2.20 crores; and that upon enquiry

with the bank, the complainant company came to know that the

accused has misappropriated the balance amount by forging the

signatures, with the help of the pledged documents.

4. It is relevant to note here that the aforesaid FIR was

registered, pursuant to an Order passed by the VI Metropolitan

Magistrate, Cyberabad at Medchal, Rangareddy District, under

Section156(3) of the Code of Criminal Procedure, 1973.

5. Though the FIR was registered more than nine years ago, no

final report has been filed so far. However, the raising of GDR by

Farmax became the subject matter of enquiry by Securities and

Exchange Board of India2. SEBI passed an Order dated

14.07.2020 holding that there were violations of various

provisions of Securities and Exchange Board of India Act, 1992

and various regulations of Securities and Exchange Board of

India (Prohibition of Fraudulent and Unfair Trade Practices

relating to Securities Market) Regulations, 2003. More 2 For Short “SEBI”

2 particularly, SEBI found one Mr. Arun Panchariya and a few

others guilty of misleading Indian investors through 14 identical

GDR issues involving fraudulent schemes.

6. Pursuant to the aforesaid, the Enforcement Directorate filed

an information report in ECIR No.HYZO/26/2022 dated

05.05.2022, naming six individuals and nine entities, as persons

suspected of committing the offence of money-laundering under

Section 3 of the Prevention 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 judicial custody by the Metropolitan

Sessions Judge, Hyderabad. The Court also granted the custody

of the appellant to the Enforcement Directorate for a period of six

days from 06.10.2022 to 11.10.2022.

8. Subsequently, the Enforcement Directorate filed a

prosecution complaint under Sections 44 and 45 of PMLA against

four individuals and two entities, namely, (i) Shri Sanjay

Aggarwal, (ii) Shri Morthala Malla Reddy, (iii) Shri Arun

Panchariya, (iv) Shri Mukesh Chauradiya, (v) M/s La Richesse

Advisors Private limited represented by Shri Sanjay Aggarwal and 3 For short “PMLA”

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(vi) M/s Vintage FZE, UAE represented by Shri Arun Panchariya.

The sum and substance of the complaint was, that Farmax

availed the services of the appellant herein and the other accused

in raising GDRs to the tune of USD 71.09 millions equivalent to

INR 318 crores; that Vintage FZE, a wholly owned entity of Arun

Panchariya solely subscribed to these GDRs, after availing a loan

from EURAM Bank, under a loan agreement dated 05.05.2020;

that Farmax executed a pledge agreement with EURAM Bank,

undertaking that the entire proceeds will be pledged to secure the

loan granted by EURAM Bank; that though Farmax issued GDRs,

the proceeds were not credited to Farmax’s credit in India, as the

same had been kept as collateral; that Vintage FZE repaid only

part of the loan and, hence, the balance amount alone got

released by the bank to Farmax; that this diversion of funds

caused a loss to Farmax to the extent of USD 15.60 millions; that

the GDRs were thereafter converted into equity shares and sold in

the Indian Stock Market; that when Farmax was advised by the

appellant to go for GDRs, Farmax was not eligible for the amount

of GDR; that therefore, the appellant herein and the entity owned

by him took the lead role in coordinating the offering; that the

appellant was the central figure in the entire drama; that the

4 appellant is a qualified Chartered Accountant, having had

experience of working with stock exchange filings related to GDRs;

that the appellant was introduced by Arun Panchariya to Srinivas

Reddy; and that the appellant and the others had committed the

offence of money-laundering.

9. According to the Enforcement Directorate, the appellant was

responsible for creating the entire infrastructure for Farmax and

Arun Panchariya to bring about the fraudulent GDR issue and

that the appellant provided formats for Board Resolutions and

also helped in transferring the funds from the account of Farmax

with EURAM Bank to the Farmax subsidiary, namely, M/s.

Farmax International FZE in UAE.

10. In the background of the above facts, it is contended by Shri

R. Basant, learned senior counsel: (i) that the appellant has been

languishing in jail from 26.09.2022, without any charge-sheet

having been filed against him in the predicate offence for the past

more than nine years; (ii) that even Srinivas Reddy at whose

instance a FIR was registered way back in the year 2013 for the

predicate offence was arrested by the Enforcement Directorate,

but the application filed by the Enforcement Directorate for his

remand was rejected by the Court; (iii) that the appellant is a

5 Chartered Accountant by profession and that he offered only

professional services within the framework of law; and (iv) that

there is nothing in the prosecution complaint to show that the

appellant is in possession of “the proceeds of crime”.

11. However, it is contended by Shri S.V. Raju, learned

Additional Solicitor General (i) that the appellant is the kingpin

and the master mind behind all the transactions; and (ii) that the

petition for bail deserves to be dismissed in view of the twin

conditions prescribed in Section 45 of PMLA.

12. We have carefully considered the rival contentions.

13. Since the main contention of the learned Additional Solicitor

General revolves around Section 45 of PMLA, it is necessary to

see the specific role assigned to the appellant in the prosecution

complaint lodged by the Enforcement Directorate. The relevant

portion of paragraph 8 of the prosecution complaint reads as

follows:

“SPECIFIC ROLE OF THE ACCUSED/ CO-ACCUSED PERSONS IN THECOMMISSION OF OFFENCE OF MONEY LAUNDERING IN TERMS OFSECTION 3 OF PMLA:

 Role of Shri Sanjay Aggarwal (A-1):-

a) Based on Sanjay Agarwal's assurances, M/s Farmax India Limited decided to proceed with plans for a GDR listing. At this point of time M/s Farmax India Limited was not eligible for USD 72.20 million GDR. Sanjay Agarwal and M/s La Richesse, accompanied by Nitish Bangera took the lead role coordinating the offering.

6 Sanjay Agarwal decided on all the participants, including the Lead Arranger (Prospect Capital) and the company's legal advisor ("Fox Mandal"). Although, Fox Mandal acted as counsel to Farmax, the email communications indicate that its role was limited to preparing a due diligence report and the Listing Prospectus ("Prospectus") to be filed with the Luxembourg Exchange.

b) Sanjay Agarwal acted as an intermediary for almost all communications with the various participants, and gave instructions to M/s Farmax India Limited before and after the offering. Notwithstanding that Agarwal was the central figure who gave instructions to Farmax which was duly followed by Morthala Srinivasa Reddy. (A-1) being a qualified Chartered Accountant, had experience of working with stock exchange filings related to GDRs, and was introduced by Arun Panchariya to MD of Farmax Ltd, Shri M. Sreenivasa Reddy. (A-1) by representing Arun Panchariya's firm Prospect Capital before the depositary, the Bank of New York and being well aware of the relation Arun Panchariya had with EURAM Bank insisted all companies going through GDR to open a bank account in that particular bank, (A-1) being well aware of the arrangement between Arun Panchariya and the Company promoters to share the proceeds of GDR, took the lead role of coordinating the offering, by purposely hiding the subscriber list from submitting to Ahmedabad Stock Exchange and hence was directly involved in the process and activity connected with the proceeds of crime including its acquisition and hence has committed the offence of money-laundering as defined under section 3 of PMLA, 2002 and is liable for 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. At the outset, there is no controversy about the

following facts:

(i) that the registration of the ECIR and the lodging of the prosecution complaint in the year 2022 were a sequel to the registration of the FIR for the predicate offence,

7 way back in the year 2013, at the instance of one M. Srinivas Reddy, Managing Director, Farmax and also a sequel to the order passed by SEBI in the year 2020;

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

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

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

(v) that the relevant portion of paragraph 8 of the prosecution complaint filed by the Enforcement Directorate, which we have extracted in the preceding paragraph, gives room for a valid argument that the second condition found in Clause (ii) of sub-section (1) of Section 45 of PMLA is satisfied qua the appellant.

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

15. However, the apprehension of the Enforcement Directorate

that the appellant is a flight-risk and may go out of the country if

released on bail, has to be taken care of by imposing appropriate

conditions.

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16. In view of the above, the appeal is allowed and the appellant

is directed to be enlarged on bail in ECIR No.HYZO/26/2022

dated 05.05.2022, subject to such terms and conditions as may

be imposed by the Metropolitan Sessions Judge-cum-Special

Court under PMLA, Nampally, Hyderabad. The conditions to be

imposed by the Special Court shall include the following

additional conditions:

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

(ii) The appellant shall regularly appear before the Special Court without fail whenever the prosecution complaint filed by ED is posted.

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

……………………………….. J.

(V. RAMASUBRAMANIAN)

……………………………….. J.

(PANKAJ MITHAL) New Delhi;

April 20, 2023

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