The Supreme Court on Thursday asked the Enforcement Directorate (ED) how an offence could be made out against former Delhi deputy chief minister Manish Sisodia if there was no apparent money trail connecting him directly with a lobby that allegedly paid kickbacks to get benefits under the Capital’s now-scrapped excise policy.

Read here: Sanjay’s Singh arrest in Delhi excise policy case sparks political firestorm

Hearing the politician’s bail petition, a bench of justices Sanjiv Khanna and SVN Bhatti observed that there were procedural and factual flaws in the federal agency’s case against Sisodia under the 2002 Prevention of Money Laundering Act (PMLA)

“How will you bring him (Sisodia) under PMLA? Has money gone to his pocket? The chain is not fully established. Money came to somebody else, its acquisition and use is by somebody else…You have to establish the flow of money from the liquor lobby to the accused,” the bench asked additional solicitor general (ASG) SV Raju, who represented ED and the Central Bureau of Investigation, both of which are investigating alleged bribery linked to the 2021 Delhi excise policy.

But the court didn’t grant Sisodia bail on Thursday, fixing October 12 as the next date of hearing.

The bench said most of the allegations in the corruption case registered by the CBI against Sisodia were “hearsay”, based on the statements made by approvers and would not pass scrutiny before the trial court without any concrete material.”Two questions in the cross-examination and this will fall flat,” justice Khanna observed.

The queries that appeared to punch holes in the ED case against Sisodia came a day after the agency arrested senior AAP leader Sanjay Singh in connection with the excise policy.

“Pressure groups are always there but policy changes without money consideration will not matter. It’s the money part which makes it an offence. If we go to an extent to say that there cannot be any pressure groups, no government can function…Lobbying will always be there. Of course, bribes cannot be accepted,” the bench told Raju.

The court also appeared to raise questions about the proof offered by the agency.

“Dinesh Arora himself is the recipient. Where is the evidence? Except for the statement of Dinesh Arora, is there any other evidence?” asked justice Khanna. Restauranteur Dinesh Arora is one of the accused in the case.

The top court also clarified that when it asked the agency why the AAP was not an accused in the case on Wednesday, it was not intended to implicate anyone and was part of the deliberations of the judges.

“The question we posed was not to implicate anybody as that was not our intention. When we were shown a chart by ED, there was the name (of the political party) given at the end. In Court we ask questions to get answers. If under the prevention of money laundering act (PMLA), if A is a beneficiary who is not prosecuted, can B or C be prosecuted?” the bench said.

The clarification came amid speculation that ED would be proceeding against the AAP. “If there is evidence, we will not spare anybody who is guilty,” Raju told reporters earlier in the day.

Sisodia was the first prominent AAP leader arrest is connected to the excise policy in which the federal agency allege kickbacks were paid. The policy was rolled out for the 2021-22 financial year in November 2021, marking the exit of the government from retail sales of alcohol and allowing private companies to bid for licenses. The objective, the Delhi government said, was to improve the buying experience for citizens by allowing market competition to raise standards.

But the policy was scrapped when Delhi’s lieutenant governor VK Saxena asked for an investigation, citing a report by the chief secretary who alleged irregularities. The AAP and the Capital’s elected government have rejected the charges, alleging it to be a ploy by the BJP-controlled Union government to target its rival.

ED has so far arrested 14 people, including Sisodia and Sanjay Singh, and filed five prosecution complaints (or charge sheets). The CBI, which is conducting a parallel corruption probe in the matter, has filed two charge sheets in the case.

Sisodia was first arrested on February 27 by CBI, and then by ED in a money laundering case stemming from the CBI FIR on March 9 after questioning him in Tihar Jail. Sisodia resigned from the Delhi cabinet on February 28.

The Delhi high court denied him bail in the CBI case on May 30, saying having been the deputy CM and excise minister, he was a “high-profile” person who had the potential to influence witnesses.

On July 3, the high court again declined him bail in the money laundering case, holding that the charges against him were “very serious in nature”.

In the CBI case, Sisodia is accused of manipulating the excise policy to help a liquor lobby from south India, referred to as South Group. CBI alleges that the group paid alleged kickbacks of ₹100 crore. ED says the former minister entered into a conspiracy with the South Group and Vijay Nair, the former media in-charge of the AAP who was arrested in September last year.

ED alleged that ₹2.2 crore was paid to one of the accused linked to Sisodia and other hawala transactions were found between the co-accused and the South Group.

But the bench appeared unimpressed. Referring to a July 2022 verdict that upheld the contentious powers of ED under PMLA, the bench said that this judgment made money-laundering a standalone offence for which a person could be separately prosecuted.

Read here: Why Aam Aadmi Party not an accused in excise case: Supreme Court asks ED

“PMLA does not concern with the generation of the proceeds of crime. How do you show a case is made out in the case of Manish Sisodia? He is not in actual possession of proceeds of crime. He may be aware of its use, but it has come to a third person. You cannot expand the meaning so widely,” said the bench.

Under Section 3 of PMLA, money laundering is defined as any “process or activity” connected with proceeds of crime, namely concealment, possession, acquisition, use, etc, with “generation” not an element of money laundering.

ASG Raju defended ED. “The proceeds of crime are generated because of the bribe. Once you have generated it indirectly, you use it as it goes to your political party.”

The bench appeared to point to a discrepancy between the CBI and ED cases, noting that the CBI charge sheet referred to the figure of ₹100 crore bribe while ED referred to a figure of ₹45 crore. “So what is paid is ₹45 crore and not ₹100 crore,” the court asked Raju.

The court also pointed out that the allegation against Sisodia was of conspiring to generate proceeds of crime. “Conspiracy is not an offence under the PMLA,” the bench remarked, to which the ASG said the politician indirectly assisted in generating the proceeds of crime and the word “assist” cannot be given a restricted meaning.

But the bench disagreed. “You cannot stretch it to mean an attempt to generate proceeds of crime. According to you it is not a case of attempt but of actual involvement. If so, what activity connects him to proceeds of crime,” the bench said.