Delhi HC Slams ED Over Illegal Arrests In ₹3,500 Crore Hawala Case | FEMA Infractions Alone Cannot Attract IPC Or PMLA | Arrests Found In Violation Of PMLA And Supreme Court Mandates
Isabella Mariam
The High Court of Delhi Single Bench of Justice Anup Jairam Bhambhani held that all proceedings initiated under FIR No. 111/2024 and ECIR No. ECIR/HIU-II/13/2024 are illegal and accordingly stand quashed. The Court directed the immediate release of the petitioners from judicial custody and invalidated all consequential actions taken pursuant to these proceedings. The Court further clarified that acts purportedly committed under the provisions of the Foreign Exchange Management Act, 1999 (FEMA) cannot, by themselves, constitute predicate offenses under the Indian Penal Code (IPC) or trigger proceedings under the Prevention of Money Laundering Act, 2002 (PMLA).
The petitioners challenged their arrests stemming from FIR No. 111/2024 registered on 30.05.2024 under sections 120-B, 420, 468, 467, 471, and 201 of the IPC, and ECIR No. ECIR/HIU-II/13/2024 registered on 31.05.2024 under the PMLA. The Enforcement Directorate (ED) conducted search and seizure operations at the petitioners’ residential and office premises on 28.05.2024 and 29.05.2024, invoking powers under Section 37 of FEMA and Section 132 of the Income Tax Act, 1961. These actions culminated in the registration of the subject FIR and ECIR.
The ED alleged that the petitioners engaged in international hawala transactions amounting to Rs. 3,500 crores through fabricated documents to remit funds to companies in Hong Kong and Canada. Cash deposits were allegedly made in various bank accounts, followed by remittances to foreign entities through M/s Birfa IT Services (P) Limited. The ED further claimed that the petitioners created fake invoices for software imports from M/s Mozire Technologies Limited.
On 30.05.2024, the ED filed a police complaint, resulting in the registration of the FIR and the petitioners’ arrests. Subsequent to their arrest, the ED registered the ECIR and recorded statements under Section 50 of the PMLA while the petitioners were in judicial custody. The ED alleged that the petitioners gave evasive replies and concealed material information.
The petitioners contended that their actions constituted, at most, violations of FEMA, which prescribes only civil penalties. They argued that the FIR and ECIR, along with their arrests, were illegal and unsustainable in law. They stated that the Supreme Court in Arvind Kejriwal vs. Directorate of Enforcement (2025) 2 SCC 248 mandated the necessity of arrest and furnishing grounds of arrest in writing, which were not complied with in their cases. They also relied on several Supreme Court precedents, including Dropti Devi vs. Union of India and Vijay Madanlal Choudhary vs. Union of India.
Justice Anup Jairam Bhambhani stated, “The legislative intent behind the repeal of FERA and the enactment of FEMA was to decriminalize foreign exchange transactions and to provide for civil liability only.” The Court observed that the ED’s initiation of criminal proceedings under the IPC and PMLA on the basis of alleged FEMA violations amounted to an indirect reintroduction of criminal liability, which was impermissible.
It was further recorded, “The reliance placed on purported confessional statements recorded under Section 37 of FEMA is legally untenable as such statements cannot be used to initiate criminal proceedings under separate statutes.” The Court referred to the Supreme Court judgment in K.T.M.S. Mohd. vs. Union of India, stating that statements recorded under one statute cannot be the basis for proceedings under another unless expressly permitted.
Regarding compliance with Section 19 of the PMLA, the Court noted, “The requirement of recording ‘reasons to believe’ and furnishing them to the arrestee is a mandatory safeguard under the Act, non-compliance of which renders the arrest illegal.” The Court further observed that the ED failed to comply with the mandate under Section 19(2) of the PMLA and the Arrest Rules, 2005.
The Court stated that “The Delhi Police registered the subject FIR without conducting any preliminary enquiry, despite the allegations being primarily civil in nature under FEMA. This is in direct contravention of the judgment in Lalita Kumari vs. Government of Uttar Pradesh.”
The Court directed the immediate release of the petitioners from judicial custody. It stated, "All actions taken pursuant to FIR No. 111/2024 and ECIR No. ECIR/HIU-II/13/2024, including the arrests and judicial remands, are hereby declared illegal and stand quashed."
Justice Bhambhani further clarified, "The enactment of FEMA does not grant immunity from prosecution under the IPC for offences arising from the same underlying actions or omissions that led to infractions of FEMA."
The Court also observed, "The registration of the subject FIR by the Delhi Police based on the complaint filed by the ED is not invalid or illegal merely because the FIR is based on the ED’s complaint; however, the petitioners’ arrest under the subject FIR is held invalid and is accordingly quashed."
Accordingly, Justice Bhambhani ordered, "The petitioners – Manideep Mago and Sanjay Sethi – are liable to be released from custody in the subject FIR upon furnishing personal bond in the sum of Rs. 5 lakhs each with two sureties in the like amount from family members, to the satisfaction of the learned trial court."
It was clarified, "Nothing in this judgment would stand in the way of the petitioners applying for bail, as may be permissible in accordance with law."
Advocates Representing the Parties:
For the Petitioners: Mr. Vikram Chaudhri, Senior Advocate with Mr. Raktim Gogoi, Mr. Arveen Sekhon, Mr. Rishi Sehgal, Mr. Shivam Pal Sharma, Mr. Anuj Kr., and Mr. Ishaan Sahai, Advocates.
For the Respondents: Mr. Amol Sinha, ASC (Criminal) for the State with Mr. Kshitiz Garg, Mr. Ashvini Kumar, and Mr. Nitish Dhawan, Advocates; Dr. B. Ramaswamy, CGSC for Union of India; Mr. Zoheb Hossain, Special Counsel with Mr. Vivek Gurnani, Mr. Pranjal Tripathi, and Mr. Kartik Sabharwal, Advocates for the ED.
Case Title: Manideep Mago & Anr. vs. Union of India & Ors.
Neutral Citation: 2025: DHC:3739
Case Number: W.P.(CRL) 2241/2024 & W.P.(CRL) 2391/2024
Bench: Justice Anup Jairam Bhambhani
[Read/Download order]
