Home / Market / Stock-market-news /  High court rulings take sting out of ED probe into NSEL scam

The Enforcement Directorate’s (ED’s) investigation of alleged money laundering in the 5,574-crore fraud at National Spot Exchange Ltd (NSEL) has come to a standstill because some suspects are no longer responding to the agency’s summons, said three people with knowledge of the development.

That’s because the agency’s summons are no longer backed by the threat of arrest after two judgements delivered by the Punjab and Haryana high court on 22 and 25 July, said the three people, including two ED officials.

In these rulings, the high court said that if a person is not arrested (or summoned) during investigations that take place immediately after a case is registered, he/she cannot be arrested after a charge sheet has been filed in court.

“Some of the accused in the NSEL scam are now no longer cooperating with the investigations," said one of the three people cited above on condition of anonymity.

“Summons to defaulters and other accused to appear for questioning are not being honoured as the ED may not be able to arrest them on charges of not cooperating with investigations, following the high court orders," said the person.

The agency is planning to appeal against the high court ruling in the Supreme Court, said the second person, an ED official. “Currently, we are taking legal counsel on the tenability of approaching the apex court, considering these are interim orders."

The appeal may be filed next week, said the second ED official. Both ED officials also spoke on condition of anonymity.

On 25 July, the Punjab and Haryana high court passed an interim order saying that a person cannot be arrested after a charge sheet has been filed, responding to a plea by PD Agro Processors, one of the defaulters in the NSEL case, with a liability of 693.75 crore.

The Haryana-based company moved the court because of concerns that its officials may be arrested under the Prevention of Money Laundering Act (PMLA) if they did not appear before the ED in response to its summons.

“The rigors of Section 45, PMLA cannot be applied when a person appeared pursuant to summons/warrant issued by the trial Court upon taking cognizance of the complaint. A person not arrested under Section 19, PMLA and appeared pursuant to the summons/warrant issued on taking cognizance of offence, the trial Court has no option except directing the person to execute (bail) bond, " the court in the order.

Section 45 is used to label offences of alleged money laundering as non-bailable; Section 19 empowers the ED to arrest an individual on suspicion of money laundering.

Simply put, the judgement says that ED cannot arrest an individual if his name appears in a charge sheet filed in any court and he has not been arrested earlier. It can arrest the individual only on the basis of a warrant issued by a court.

In April 2015, the ED filed its first charge sheet in connection with the NSEL scam against 68 people including Jignesh Shah, founder and former chairman of Financial Technologies (India) Ltd (FTIL). FTIL, now renamed 63 Moons Technologies Ltd, owns 99.99% of NSEL, where the fraud surfaced in July 2013. ED had registered a criminal case against Shah under PMLA in 2013.

Shah was arrested by the investigative agency on 12 July this year for allegedly not cooperating with investigations. Shah’s counsel contested that his arrest was on the basis of the first charge sheet filed by the agency. Subsequently, later in July, the agency filed a fresh complaint to justify the arrest. Shah was granted bail by a PMLA court on 6 August.

“On the basis of the Punjab and Haryana court judgement, many key accused are changing their statements and have stopped cooperating as there is no fear of arrest," said the first ED official cited above.

The Indian Express reported on 16 August that the ruling had put the ED on the back foot in the Chhagan Bhujbal case as well. On 30 March, the agency had filed a charge sheet in a money-laundering case against Bhujbal, former public works department (PWD) minister of Maharashtra, and 29 others.

In the charge sheet, the agency alleged that Bhujbal family conspired along with several others to divert or ‘launder’ kickbacks received by Bhujbal while he was serving as PWD minister.

ED arrested Bhujbal on 14 March on charges of money laundering. The investigative agency is concerned that in the absence of the arrest threat, the other suspects will stop cooperating with investigations.

The high court orders may have fettered the ED’s investigative powers, but legal experts say that arresting a suspect after a charge sheet is filed is legally not tenable.

“Arrest for any crime is not meant to harass or embarrass or bring disrepute, as arrest is only necessary in certain given situations. Supreme Court in previous instances had categorically warned enforcement agencies on avoiding arrest," said Majeed Memon, a senior Supreme Court lawyer, who had earlier represented FTIL in a defamation case.

“The power to arrest has been upheld in highest court as being vulnerable to abuse. Arrest has to be resorted to as last means for progress in investigation. ED has been using this as means to harass," added Memon.

Such court orders may prove counterproductive in investigations, said another lawyer.

“Filing a charge sheet does not mean that investigation is closed. An offence of criminal conspiracy requires the investigation agency to unearth all the facts of the case, which can take some time," said Ujjwal Nikam, a senior counsel and special public prosecutor.

“A judgement of the nature that an accused cannot be arrested after the filing of a charge sheet can be used as a means to avoid custodial interrogation. An accused can abscond till the filing of a charge sheet, as he may not be arrested post-filing of it. Such a judgement needs to be appealed in higher courts," said Nikam.

Jayshree P Upadhyay
Jayshree heads a team of reporters focussing on legal, regulatory, investigative stories. She has worked for over a decade, reporting on financial scams, legal stories and the intersection of corporate and regulatory issues. She is based in Mumbai and has previously worked with Business Standard, Mint, The Morning Context and Bloomberg TV India.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Recommended For You
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout