[REWORK, BG lacks flow and facts are not clear from the text] [Rs 200 Crore Money Laundering Case] Mumbai Special Court Grants Bail To Co-Founder of Yes Bank

A special PMLA Court in Mumbai has recently granted bail to Rana Kapoor, co-founder of Yes Bank in a Rs 200 crore bank loan fraud case. The court allowed his claim of the right to parity with co-accused persons and stated that the Enforcement Directorate cannot have the authority to pick as to who should be detained or not.

The Special PMLA judge, Justice MG Deshpande granted Kapoor bail on a PR bond of Rs. 1 lakh. However, since he is involved in other matters also, so he won’t be able to leave the prison.

The Enforcement Directorate received harsh criticism from the court for selectively detaining Kapoor and opposing bail "while doing nothing to start the trial".

“In the present matter, Rana has already undergone 73% incarceration of three-year minimum punishment provided under section 4 of the PMLA Act," the court highlighted.

Background:

Kapoor was first arrested in March 2020 by the Enforcement Directorate (ED) on money laundering charges under the Prevention of Money Laundering Act (PMLA). He was subsequently charged in other loan fraud cases being probed by the ED and the Central Bureau of Investigation (CBI).

He obtained bail in a case which involves a Rs 200 billion loan from Yes Bank to a business called Mack Star Marketing Pvt. Ltd. Earlier Kapoor was the managing director and chief executive officer of the bank, and he is being investigated for his involvement in the loan's approval matter.

Mack Star Marketing Pvt. Ltd. is a joint venture between Mauritian company Ocean Deity Investment Holdings Ltd (ODIL) and Housing Development and Infrastructure Ltd (HDIL). According to its Articles of Association, Mack Star was prohibited from obtaining a loan for more than Rs. 20 lakhs without the approval of ODIL.

According to the prosecution, HDIL Group was in financial trouble and was having difficulty in repaying its loans. As a result, the Wadhawans obtained loans of Rs 200 crores from Yes Bank Ltd in the name of Mack Star without the approval of ODIL.

Out of the Rs. 200.3 crore sanctioned loan, Rs. 138 crore was deposited to Mack Star's account, while Rs 64 crore was transferred directly to HDI. On the same day of the loan release, another Rs. 135 crores were sent from Mack Star's account to the accounts of HDIL Group companies to satisfy their loans with Yes Bank.

ODIL was first unaware of the illicit loans since the auditor had also conspired with the Wadhawans. However, when the investors realised this in 2016 and informed Yes Bank, it still disbursed more loans to Mack Star’s account.

Yes Bank made the loans notwithstanding a requirement in its sanction letter that it obtain Non-Disposal Undertakings (NDU) from the investors. The prosecution said that while it got NDUs from the Wadhawans, it never sought the majority investors (ODIL) in order to conceal the transaction from them. Yes Bank also lied about violating Mack Star's Articles of Association.

The CBI filed an FIR against the Wadhawans, two directors of HDIL, the chartered accounting firm, two private individuals, and unknown public officers and private individuals under sections 120B, 409, and 420 of the IPC and sections 13(2) and 13(1)(d) of the PC Act.

Based on the FIR, the ED filed an ECIR under PMLA sections 3 and 4 and detained Kapoor on January 27, 2021. As a result, he requested bail on medical grounds as well as parity because the other accused were either not arrested or were released on bail.

The ED opposed the bail request, claiming that the banker was actively involved in money laundering. The central investigation agency further claimed that the alleged offence was "serious" in nature. As a result, due to "the gravity and magnitude" of the accused crime, bail could not be given to him.

Special Court’s Observation:

The court stated that such huge loans of Rs 200.3 crore from Yes Bank would not have been sanctioned unless clearances were obtained from each and every department and their heads. The bail granted to the co-accused had never been disputed by the investigation agency, "allowing it to attain finality," it said.

The court considered it "shocking" that the ED was wholly unaware of the status of the case involving the predicate offence. Furthermore, the ED began looking for this information only after the court recognised Kapoor's disproportionate detention and repeatedly directed the ED to comply with Section 44(1)(c) of the PMLA.

According to Section 44(1)(c), the PMLA case and the case connected to the predicate offence must be tried concurrently but separately at the PMLA court. The PMLA case cannot be tried unless the ED transfers the case of the predicate offence to the PMLA court.

The court further stated that despite repeated orders to ED to comply with Section 44(1)(c), ED pretended to speed solely for the trial of cases in which all defendants had been bailed for a lengthy time. According to the court, this was not a legitimate response to undertrial detainees who had been incarcerated for an extended period of time.

The special judge stated that while the ED may shape the discretion granted by the PMLA "as they wish," the court "has a bounden duty and is under legal obligation not to allow undue incarceration of any undertrial prisoner." 

According to the court, the ED had not made any steps to initiate the trials of the undertrial convicts. The fact that bail or release proceedings were underway in some of the instances did not bar ED from complying with section 44(1)(c), according to the Judge.

The court ruled that Kapoor's detention could not be extended solely on the CBI's word that the predicate offence was being investigated, without any support from a progress report.

Case Title: Rana Kapoor vs. Directorate of Enforcement

Statute: The Prevention of Money Laundering Act, 2002