September 13, 2016

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Illegal Arrest Of Jignesh Shah: An Analysis Of The Judgement

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The recent Special PMLA Court Judgment states that the arrest of Jignesh Shah was illegal. Here is a look at the Judgment and why the court declared it as illegal...

Jignesh Shah - founder of Financial Technologies India Limited (FTIL), one of whose subsidiaries is National Spot Exchange Limited (NSEL) - was arrested by the Enforcement Directorate (ED) in connection with the ` 5,600 crore payment default at NSEL. The following day on July 13, Shah, once the poster boy of the Indian Exchange Markets, was remanded to police custody till July 18 and then to judicial custody till August 1. He was kept in a special single cell in Kalyan Jail.

On August 3, Shah, pleaded for bail, while stating that his arrest was illegal even as ED maintained it was legal. Shah’s counsel, Abad Ponda, argued that the July 12 arrest violated his client’s right to personal liberty, and was illegal because the law did not permit ED to make an arrest under the Prevention of Money Laundering Act (PMLA) once a court had already taken cognisance of an offence under the Act.

Ponda pointed out that a special court had already taken cognisance of the case filed earlier, in which Shah was shown as second accused. He argued that at the postcognisance stage, any person already arraigned under sections 3 and 4 of the PMLA Act could not be arrested except if the court issued a warrant. Ponda reiterated that the court on December 4, 2015, had taken the view that this was not a case fit for warrant but for summons, and the same had not been challenged by the ED. He said that Shah had been earlier arrested on May 7, 2014 by the Economic Offences Wing (EOW) and released on August 22 the same year, and the ED had chosen not to arrest him in the first complaint and hence, his arrest now was illegal and only the result of pressure from vested interests.

Special counsel for ED, Hiten Venegaonkar, however, argued that Shah’s July 12, 2016 arrest was under a fresh investigation and that the fresh probe pertained to alleged money laundering between FTIL and two of its other subsidiaries, IBMA and NBHC, and not to the NSEL crisis. He added that the first complaint on March 30, 2015, was about NSEL and not about any fraud committed in the capacity of Chairperson of FTIL (FTIL is the umbrella company of NSEL, IBMA and NBHC).

After hearing both sides, Hon. Judge P.R. Bhavake, Special PMLA Court, Mumbai, granted bail to Shah on a bail bond of `2 lakh and ruled: “The learned counsel for the ED failed to satisfy me that this arrest is for a separate crime… I do not find any force in the contention that the ED wanted to file a supplementary complaint against the applicant (Shah) in respect of the investigation made against him as Chairman of FTIL. The ED has come with specific averments that the applicant is not arrested in special PMLA case no. 04/2015 but in other Enforcement Case Information Report (ECIR). The ED has failed to satisfy the Court how the applicant’s arrest is legal in different ECIR… There is no vicarious liability unless statute specifically provides so… There is no question of the applicant tampering with any evidence since all the evidence is already collected by the EOW of Mumbai Police and the MPID (Maharashtra Protection of Interest of Depositors) Court. There is no material before this Court also to show that the applicant will attempt to influence the witnesses.”

Bail was granted to Shah, 21 days after his arrest.

Case Background

A case was first registered (FIR no. 216/2013) at MRA Marg Police Station, Mumbai, U/s. 120(B), 409, 465, 467, 468, 471, 472, 474 and 477-A of the IPC against directors and key management and brokers of NSEL for the alleged `5,600 crore payment crisis in activities and working of NSEL. The said complaint was transferred to the EOW, Mumbai, after which, a separate crime was registered by EOW (no. 89/2013) U/s. 3 and 4 of the MPID Act, 1999.

Shah was arrested in the said crime on May 7, 2014, and on August 4, 2014, EOW filed the charge-sheet against Shah before the MPID Court. On August 22, 2014, after detailed consideration of the charge-sheet, the Hon. Bombay High Court granted regular bail to Shah in the said offence. Significantly, the Hon. Bombay High Court observed that “though the case had been projected as a scam of `5600 crore, it needed to be kept in mind that these amounts had not been received by NSEL.” The court further observed that the alleged ill-gotten money had not gone to Shah.

The ED on May 30, 2015 filed a complaint against Shah and 68 other accused U/s. 45 of the PMLA, 2002. It alleged only negligence against Shah and failed to demonstrate any case (prima facie or otherwise) against Shah being involved in the offence of money laundering. On the contrary, the complaint said that the alleged acts of money laundering were committed by 24 defaulting members and certain employees of NSEL. On December 4, 2015, the Special PMLA Judge ruled that this was not a case fit for warrant but for summons. The order was not challenged by the ED.

On the recent July 12, 2016, arrest of his client by ED, Ponda argued that the ED had no right to arrest Shah once the court had taken cognisance of the case and issued process against the accused. Ponda said that the arrest itself was bad in law, and a violation of Shah’s personal liberty. Ponda submitted that there were no grave allegations against Shah and it was alleged that he was only negligent.

The Judgement

The court held that special counsel for ED had failed to satisfy it that Shah’s July 12, 2016 arrest was for a separate crime. The court acknowledged that Ponda had rightly brought to its attention that supplementary charge-sheet or complaint cannot be filed by investigation machinery when, after filing of complaint, culpability of any other person was found during investigation. The court thus did not find any force in the contention of ED special counsel that ED wanted to file a supplementary complaint against Shah in respect of the investigation into his functioning as Chairman of FTIL. The court also said that it had been brought to its notice that before filing of complaint, ED had summoned Shah four or five times. Copies of summons issued to Shah had been placed on record and the ED too had not disputed the same. If the ED wanted to investigate into Shah’s functioning as Chairman, FTIL, it should have issued summons to Shah for inquiry or recording of his statement. Non-issuance of summons clearly revealed that ED had not arrested the accused in a fresh crime but in the same pending PMLA case.

The court ruled that as per ratio laid down by the Hon. Punjab and Haryana High Court, the rigors of section 45 of PMLA, 2002, were not applicable to the present case against Shah. The ED had failed to satisfy the court as to how the arrest of Shah was legal in a different ECIR.


All said and done, the manner of Shah’s arrest raised eyebrows. Having called for interrogation, he was asked to stay back and eventually informed that he has been placed under arrest. What was more surprising was the fact that charges presented by the ED were already there in the first charge-sheet filed in the court. How can you arrest again to file a supplementary charge? Worse, investigating agencies had informed the court that Shah had been more than cooperative during their probe and no money trail had been traced to him, as stated by Justice Abhay Thipsay of the Hon. Bombay High Court while releasing Shah on bail nearly two years ago from his previous judicial custody. So what was the need for another arrest, asked many.

It may be pointed out that Shah, being a non-executive director of NSEL, was not involved in the day-to-day operations and functioning of NSEL. In fact, NSEL was run by a professional management. NSEL MD & CEO Mr Anjani Sinha and his executive team were in-charge of the day-to-day operations. Hence, holding Shah responsible for alleged irregularities at NSEL is both, unfair and unwarranted.

The arrest triggered a wave of anti-Shah Internet trolls who surprisingly never spoke of the defaulters and fraudulent brokers who lured alleged investors or bogus traders into trades on NSEL exchange platform for arbitrage gains.

Disclaimer – Statements and opinions expressed in this article are those from the editorial and are well researched from various sources. The content in the article is purely informative.

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