UNION OF INDIA VS. KANHAIYA PRASAD: SUPREME COURT SETS ASIDE BAIL GRANT UNDER PMLA FOR MONEY LAUNDERING ALLEGATIONS

February 19, 2025by Primelegal Team0
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Case Details

Case Name: The Union of India vs. Kanhaiya Prasad

Case Number: Criminal Appeal No. 728 of 2025 (@ SLP (Crl.) No. 7140 of 2024)

Date: February 13, 2025

Quorum: Justice Bela M. Trivedi & Justice Prasanna B. Varale

FACTS OF THE CASE

The Enforcement Directorate (ED) has now complied with the Patna High Court’s direction on granting bail to Kanhaiya Prasad who is facing money laundering charge under the Prevention of Money Laundering Act, 2002 (PMLA). [Dr. Talwar has claimed against the accused vide the FIRs of the following nature which has been committed by the accused and the respondents in various districts of Bihar in violation of the act of illegal sand mining (causing revenue loss to GDP of ₹161.15 crores) to the government]. [Dr. Talwar opposed the previous judgment of the apex court that vested power of removal of charge from FIR and guiding the IOB to investigate the case as under law it was justifiable that the IOB should investigate a case with the details of punishment and penalty provided under the law].

Radha Charan Sah’s son, Kanhaiya Prasad, was charged with hiding and dealing in ₹17.26 crores of crime proceeds, which were purportedly used to build a resort in Manali and a school under his family-run trust. The ED arrested Prasad in September 2023, accusing him of being involved in layering and money laundering through a hawala network. The Special Court of PMLA accepted the case, but bail was granted by the Patna High Court, leading the Union of India to appeal against the order in the Supreme Court.

ISSUES OF THE CASE

  1. Whether the High Court commit an error when granting bail without taking into account the two conditions provided within Section 45 of PMLA?
  2. Whether the statements taken in pursuant to Section 50 of PMLA on which the prosecution based its case admissible?
  3. Whether the respondent’s alleged activities in the management and concealment of the proceeds of the crime called for custodial detention.

 

LEGAL PROVISIONS INVOLVED

  1. The PMLA 2002sada defines money laundering under section 2 as engaging in any process in relation to the proceeds of a crime.
  2. Imprisonment for five to seven years and a fine for money laundering is covered in section 2 of the Act.
  3. Section 45 of the PMoA states that bail can only be given if (i) the Public Prosecutor is first allowed to oppose it and (ii) the court is satisfied that the accused is not only innocent but won’t repeat the offense.

ARGUMENTS BY THE APPELLANT (UNION OF INDIA/ED)

ED asserted that the bail order made by High Court was not lawful under the PMLA, which, inter alia, enacts stringent conditions for grant of bail. As per the agency, the respondent actively participated in money laundering activities that arose as a result of illegal mining activities. The proceeds were laundered through family-controlled businesses and through the use of a hawala (or money transfer) system that clean them up from the front.

ARGUMENTS BY THE RESPONDENT (KANHAIYA PRASAD)

It was argued that the accused had already paid all alleged tax dues, weakening the claim that the funds were proceeds of crime. The defense pointed out that the accused was not named in the predicate offense (original illegal mining FIRs), making his prosecution under PMLA unsustainable. They urged the Supreme Court to uphold the High Court’s bail order, citing precedents where bail was granted in cases lacking direct evidence of money laundering.

ANALYSIS

The Supreme Court examined whether the High Court had correctly applied Section 45 of PMLA. The Court reiterated that PMLA offenses are not ordinary crimes but serious economic offenses affecting financial stability and national security. The Court observed that the High Court had granted bail without addressing whether the respondent met the twin conditions of Section 45. There was no judicial satisfaction recorded that Prasad was not guilty or unlikely to commit another offense, making the High Court’s order legally unsound.

The Court also clarified that statements recorded under Section 50 of PMLA are not self-incriminatory by default, as the respondent was legally bound to disclose financial transactions. The Vijay Madanlal Choudhary ruling was reaffirmed, holding that PMLA’s procedural requirements, including the burden of proof on the accused, were constitutional and necessary to combat money laundering. The argument that Prasad was not named in the predicate offense was rejected, as PMLA defines money laundering as an independent crime linked to proceeds of criminal activity.

JUDGMENT

The Supreme Court set aside the High Court’s bail order, ruling that The High Court erred in granting bail without applying the twin conditions of Section 45 of PMLA. The accused was involved in transactions linked to proceeds of crime, making his role significant under PMLA. Statements under Section 50 of PMLA are legally admissible, and the burden of proof was on the accused to demonstrate the legitimacy of the funds. The accused must surrender within one week before the Special Court, which will re-examine the bail application per PMLA’s requirements.

CONCLUSION

This judgment demonstrates the unwillingness of the Supreme Court in the dealing of bail in matters of money laundering, and gives effect to the very harsh bail criteria under PMLA. While setting aside the High Court’s ruling, the Court reaffirmed that lower courts must abide by the two pronged test of section 45 before granting bail. The ruling confirms the position that economic offenses put national sovereignty at serious risk and as such must be dealt with in a very robust manner and that those who are believed to have committed money laundering of criminal proceeds must not be granted bail as a matter of course, but rather, they must fulfill certain legal conditions first.

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WRITTEN BY SUBRAT ASHISH KHARE

 

Primelegal Team

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