Explained: The Alleged Liquor Scam Case Against Kejriwal

“TAKE the case of a terrorist. He blows up an army vehicle and says I want to contest elections so you can’t touch me? What kind of argument is this,” thundered Additional Solicitor General (ASG) S.V. Raju, for the Directorate of Enforcement (ED), in the ‘liquor scam’ case against Delhi Chief Minister Arvind Kejriwal.

Kejriwal has challenged his arrest under the Prevention of Money Laundering Act (PMLA), 2002 by the ED on March 21.

On Wednesday, the Delhi High Court reserved its judgment on the writ petition filed by Kejriwal. In his petition, Kejriwal has also sought quashing of the Order, dated March 22, 2024, passed by the special judge (PMLA) remanding Kejriwal to the custody of the ED.

Justice Swarana Kanta Sharma, after extensively hearing senior advocate Dr Abhishek Manu Singhvi for Kejriwal and Additional Solicitor General (ASG) S.V. Raju for the ED, closed the petition for judgment on a date to be notified later.

What is the liquor scam?

The Central Bureau of Investigation (CBI), in its chargesheet, as recorded by the Supreme Court in its judgment in Manish Sisodia’s case states: “The existing excise policy was changed to facilitate and get kickbacks and bribes from wholesale distributors by enhancing their commission/fee from 5 percent under the old policy to 12 percent under the new policy.”

According to the CBI, a conspiracy was hatched to carefully draft the new policy, deviating from the expert opinion and views to create an ecosystem to ensure unjust enrichment of the wholesale distributors at the expense of government exchequer and consumers. The illegal income (proceeds of crime) would partly be recycled and returned in the form of bribes.

The chargesheet further states that Vijay Nair, who was the middleman, a go-between, a member of the Aam Aadmi Party (AAP) and a co-confident of Sisodia, had interacted with Butchi Babu, Arun Pillai, Abhishek Boinpally and Sarath Reddy to frame the excise policy on conditions and terms put forth and to the satisfaction and desire of the liquor group.

Nair and the members of the liquor group had meetings on different dates, including March 16, 2021, and had prepared the new excise policy, which was handed over to Nair, the chargesheet further alleges.

Thereupon, the commission or fee, which was earlier fixed at a minimum of 5 percent, was enhanced to a fixed fee of 12 percent payable to wholesale distributors, the CBI asserts in the chargesheet.

The chargesheet further alleges that Sisodia was aware that three liquor manufacturers had an 85 percent share in the liquor market in Delhi. Of them, two manufacturers had a 65 percent share, while 14 small manufacturers had a 20 percent market share (sic).

As per the terms of the new excise policy, each manufacturer could appoint only one wholesale distributor through whom alone the liquor would be sold. At the same time, the wholesale distributors could enter into distribution agreements with multiple manufacturers. This facilitated getting kickbacks or bribes from the wholesale distributors having substantial market share and turnover, as per the chargesheet

The ED has alleged that a kickback of ₹100 crore was received from the liquor group. This, the Supreme Court in the Manish Sisodia case, termed somewhat of a matter of debate.

The ED also asserted that a portion of the kickbacks— ₹45 crore— was transferred through Hawala for the Goa election and used by the AAP.

Arguments by Singhvi

On Wednesday, March 3, Singhvi questioned the timing of Kejriwal’s arrest. He contended that the arrest of a sitting chief minister and national party head directly impacted the level playing field concerning the scheduled Lok Sabha elections.

He submitted that a level playing field is vital for free and fair elections. He said it is an essential part of democracy and lies at the heart of the basic structure of the Constitution as well.

Singhvi went on to submit that Kejriwal’s arrest on the eve of the Lok Sabha elections was to prevent him from participating in democratic activity.

Singhvi drew the court’s attention to the first summons issued by the ED to Kejriwal which dates back to October 30 last year, but the ED made no arrest. The arrest was made only on March 21, 2024, that is, after the announcement of the Lok Sabha elections by the Election Commission of India.

Such an arrest, Singhvi argued, reeked of mala fide and intention to damage the basic structure of the Constitution and the level playing field for elections. He contended that the timing of the arrest of Kejriwal was an unconstitutional element of it.

Singhvi then argued at length on the necessity of the arrest. Section 19(1) of the PMLA confers power upon the ED to make an arrest provided that the officer, based on material in his possession, has reason to believe (the reason for such belief to be recorded in writing) that any person has been guilty of an offence punishable under the PMLA.

Singhvi contended that to justify the arrest under Section 19 of the PMLA, the officer must have ‘material in possession’; therefore, the expression must be confined, circumscribed and limited to legally admissible evidence of sterling quality and unimpeachable character based on which ‘reasons to believe’ could be recorded in writing that the arrestee is ‘guilty’ of the offence under the PMLA.

Singhvi added that the word ‘guilt’ occurring in Section 19 would qualify as a higher yardstick than a mere suspicion and the court at the stage of remand is required to apply its judicial mind to the grounds as well as the necessity for arrest.

He submitted that the ‘necessity of an arrest’ test is included in Section 19 of the PMLA. He referred to the judgment of the Supreme Court in Pankaj Bansal versus Union of India, in which a two-judge Bench, while referring to a judgment in Vijay Madanlal Choudhary versus Union of India, said that such stringent safeguards provided under Section 19 of the PMLA prompted the court in Vijay Madanlal to uphold the twin conditions contained in Section 45 of the PMLA which make it difficult to secure bail.

Singhvi argued that the rigours of Section 19 arrest should be as strict and high as the rigours of Section 45 of the PMLA, as the wording in Section 45 PMLA, i.e., ‘reasonable ground for believing that he is not guilty’ is similar to the wordings in Section 19 PMLA ‘reason to believe that … any person has been guilty of an offence’.

Singhvi also argued that Kejriwal was issued a summons under Section 50 of the PMLA and at this stage, no formal document indicative of the likelihood of involvement of Kejriwal as an accused in the offence of money laundering existed.

He added that it is only the information and evidence collated during the inquiry under Section 50, which may disclose the commission of the offence of money laundering and the involvement of the person so summoned under Section 50.

However, in the case of Kejriwal, the ED did not even collect any information or evidence at the Section 50 stage which can necessitate a formal accusation against the petitioner, let alone an arrest under Section 19, Singhvi argued.

He added that the ED made no attempts to record the statement of Kejriwal at his residence under Section 50 of the PMLA. No questionnaire was sent to Kejriwal to respond.

Singhvi also submitted that the ED’s argument that Kejriwal did not respect multiple summons issued by the ED is a red-herring. If ED wanted, it could have recorded the statement at the residence of Kejriwal. It could have sent a questionnaire or given the option of video conferencing. But nothing of that sort was done by the ED.

Referring to grounds of arrest which, among others, contain the statements of the co-accused who later became an approver and was granted bail on concession by the ED, Singhvi submitted that these statements are contradictory to the statements the co-accused had made earlier, and lacked corroboration.

Referring to the facts of the case, Singhvi submitted that after a statement dated November 9, 2022, co-accused P. Sharath Reddy had made an implicating statement after six months on April 29, 2023.

In 11 of the 13 statements given by Reddy, no allegations were made. However, the ED, Singhvi submitted, arbitrarily and with the intention to illegally build a case against Kejriwal, is relying only on the last two statements.

Singhvi referred to yet another co-accused Raghav Magunta as well. After a statement dated September 16, 2023, Raghav Magunta made implicating statements after 10 months on July 26, 2023 and July 27, 2023.

In Magunta’s case as well, no allegations were made in six of the eight statements given by him. However, the ED arbitrarily and with the intention of illegally building a case against the petitioner is relying only on two statements made after a “deal” with the ED.

Another co-accused, Magunta Sreenivasulu Reddy, father of co-accused-turned-approver Raghav Magunta, after his initial statement dated September 16, 2022, made a statement on July 16, 2023. Two days after his statement on July 18, 2023, his son got interim bail.

Singhvi argued that these statements were made by the co-accused implicating Kejriwal in lieu of the ED being lenient and not opposing their bail. He also pointed out that Magunta Sreenivasulu Reddy, the father of an accused-turned-approver, got a Lok Sabha election ticket from the Telugu Desam Party, an ally of the Bharatiya Janata Party (BJP).

He added that a company linked to another person accused in the same case, P. Sarath Chandra Reddy, had donated ₹5 crore to the Bharatiya Janata Party in 2022, just five days after Reddy was taken in custody. Another sum of ₹25 crore was donated to the BJP after Reddy turned approver in the Delhi excise policy case.

Singhvi thus termed the case a “fixed match” by the ED. He also submitted that there is no material proving the involvement of Kejriwal in the process or activities related to proceeds of crime— be it one of concealment, possession, acquisition, use of proceeds of crime as much as projecting it as untainted property or claiming it to be so.

Referring to the Supreme Court’s judgment in Manish Sisodia, Singhvi submitted that a specific ground in relation to the said proceeds of crime amounting to ₹45 crore was raised regarding Manish Sisodia also and the same was rejected by the Supreme Court in holding that there was no specific allegation of involvement of Manish Sisodia in the transfer of those ₹45 crores. Likewise, no specific allegation or act has been alleged by the ED against Kejriwal, Singhvi submitted.

Singhvi also argued that Kejriwal could not be vicariously liable for a PMLA offence by virtue of Section 70 PMLA which only relates to companies.

He contended that the AAP, a political party under Section 2(f) of the Representation of Peoples Act, 1951, cannot be held to be a company as the ED alleges in the grounds of arrest.

Arguments by ASG Raju

Raju asserted that Singhvi had argued the matter like a bail petition or a quashing petition. He said that Kejriwal has not challenged a fresh remand Order of April 1 by which he is in custody.

He added that even if Kejriwal had challenged the fresh remand Order, it would still not have been valid since he chose not to oppose the original remand. He also submitted that the trial court had taken cognisance of the PMLA complaint which showed that money laundering had indeed taken place.

Raju also contended that Kejriwal cannot demand special treatment merely because he is a chief minister and the Lok Sabha elections are impending.

“Suppose a political person commits a murder before the election. Will he not be arrested?” Raju asked.

On the issue of the statements of witnesses, Raju submitted that whether they are true or otherwise is a matter of trial. He added that Kejriwal was arrested because he was responsible for the affairs of the AAP, which benefited from the money laundering.

On the variance of statements by co-accused persons, Raju argued that accused persons may change their statement after being presented with evidence and confronted with the material.

Raju also refuted the allegations that the ED has become active only ahead of the Lok Sabha elections. He submitted that the ED has been active for many years.

He added that a large number of digital devices were destroyed. “You change your mobiles or destroy mobiles periodically. You act through a middleman so that you do not come into the picture. Vijay Nair comes in, and the attitude is, I did not do anything. You have done it very tactically but we unearthed it (the scam) despite hurdles,” Raju contended.

Raju also argued that the finding of actual proceeds of crime is irrelevant if the ED makes out a case that Kejriwal is involved in money laundering.

“The argument is mere ghar se toh kuch nahi mila (nothing was found at my house). Lekin aapne kisi aur ko de diya toh kaha se milega aapke ghar me se? (But if you have handed over the proceeds to someone else, how could they be found at your house?). He is actually involved and he is vicariously involved,” Raju submitted.

Courtesy: The Leaflet