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“Section 45(1)(iii) of the PMLA, cannot become a tool which can be used to incarcerate the accused without trial for an unreasonably long time with an exception in a case where, considering the antecedents of the accused, there is every possibility of the accused becoming a real threat to society if enlarged on bail”, the court highlighted.
The Patiala House Court, recently, granted bail to Rajan Malik, a Chartered Accountant for his involvement in the Vivo India money laundering cases and the Chinese visa scam.
Additional Sessions Judge Kiran Gupta while grating bail noted, “On careful perusal of these statements u/s 50 PMLA, it cannot be said that the applicant was the mastermind or key person to give effect to the entire operation or creating mesh of companies”.
Per ED’s case, Vivo China monopolized operations in India through Vivo India and its 23 Special Distribution Channels (SDCs). This setup was used to fraudulently launder money abroad, disguising these transfers as payments for imported goods. From 2015 to 2021, ₹70,837 crores were remitted out of a total of ₹71,625 crores in sales.
Vivo bypassed government scrutiny by falsely claiming to be in the wholesale business, using a front company, LabQuest, for its retail operations. Rajan Malik helped set up LabQuest to evade Foreign Direct Investment (FDI) rules. Through this scheme, Vivo's network funneled ₹283.87 crores through 31 bank accounts under LabQuest, facilitating mobile trading operations and remittances to SDCs.
Malik, a statutory auditor and beneficial owner of LabQuest, played a key role in establishing Vivo group companies across India, providing funds for securing office spaces and residences for Chinese employees. His involvement was pivotal in the money-laundering process, with his companies being compensated significantly for their services. The ED has requested that his bail application be dismissed.
Rajan Malik, represented by Advocate Hemant Shah, contended that the offence of money laundering was not made out against him as there is no evidence linking him to the crime. It was asserted that Malik satisfied the conditions for bail under Section 45 of the PMLA. It was contended that Malik was a Chartered Accountant and thus was limited to providing professional services. Advocate Shah also argued that there was no indication of criminal intent or participation in forgery, cheating, or handling proceeds of crime (PoC). The amount of Rs. 1.27 crores received by his firm was for legitimate professional services, and no evidence supports the claim that it was PoC.
Special Public Prosecutors Manish Jain and Simon Benjamin, representing ED, argued that Malik was the beneficial owner of Labquest, Rajan Malik & Co., and KLM Associates Pvt. Ltd. This claim was supported by statements made by several individuals, including Rajan Sachdeva, Sandeep Singh, Kamna Malik, Shilpa Kunwar, Rajan Malik, Hari Om Ram, and Harendra Sharma, recorded under Section 50 of the PMLA.
ED alleged that Malik provided infrastructure to Special Distribution Channels (SDCs) through Labquest, facilitating lease agreements that helped VIVO India establish its presence across the country.
The court first referred to section 45 of PMLA, noting that it imposes two conditions for bail: a). there must be reasonable grounds to believe the accused is not guilty, and b). they are unlikely to commit further offenses.
The court noted that while considering bail under PMLA, it is not required to determine innocence but must also weigh the broad probabilities, including mens rea and the possibility of reoffending. The court reiterated the golden rule that “Bail is the rule and Jail is an exception”.
The court observed that Malik was a CA of the company and not its director. The court noted that financial transactions related to lease agreements were conducted by Hari Om Rai and his company Lava, not Malik. The payments made to Malik's firm were legitimate professional fees for audit and compliance services, with no evidence of concealed or misleading information in his audit report.
“As per the agency, the applicant was introduced to the officials of Vivo India by Hari Om Rai in 2014. Admittedly, the Visa invitation to these Chinese were given by Hari Om Rai and not the applicant. As per record, Vivo India was already incorporated in July 2014. Thus, the applicant was introduced to Vivo India only after its incorporation”, the court outlined.
Furthermore, the court elucidated that while economic offenses are serious, it found no prima facie evidence that Malik was the mastermind behind the alleged operations, and his professional services appeared within the scope of his duties as a CA. Whether Malik had prior knowledge or intent regarding illegal activities remains a matter of further investigation, the court added.
“The applicant is a CA and nothing has been brought to the notice that he has done something which was beyond his scope of profession i.e. he indulged in some activities which are totally unconnected with the Chartered Accountancy”, the court concluded.
The court, after examining the submission as well as the statements of the co-accused, deemed it feasible to grant bail to Rajan Malik. The court also highlighted that Malik had no prior criminal record and had been in custody for a year while suffering from various ailments. Accordingly, the court granted bail to Rajan Malik.
For Accused: Advocates Hemant Shah, Mohit Kumar Gupta, Harsh Yadav and Saurabh PalFor ED: Special Public Prosecutors Manish Jain and Simon Benjamin with Advocate Snehal ShardaCase Title: ED v M/S Vivo Mobile Communication And Ors. (CT. CASES 102/2023)
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