TMI Blog2011 (8) TMI 1247X X X X Extracts X X X X X X X X Extracts X X X X ..... t on 8th March, 2011 for obtaining his remand in the custody of Directorate of Enforcement. It appears that, initially, the Special Court remanded the Applicant in custody, but by an order dated 11th March, 2011, rejected the prayer of the Directorate of Enforcement for remand of the Applicant in custody. The Special Court released the Applicant on bail. As in connection with a Public Interest Litigation pending in the Supreme Court of India, the Directorate of Enforcement was required to file status report in respect of the investigations carried out in this case, the matter was brought to the notice of the Supreme Court of India. Their Lordships of the Supreme Court of India ordered stay of the operation of the bail order and authorized the detention of the Applicant in custody for a period of four days, initially. On 29th March, 2011, the Supreme Court of India disposed of the Appeal as well as the S.L.P., giving liberty to the Applicant to seek bail and to the Directorate of Enforcement to seek further remand in custody, by making appropriate applications before the Special Court. The Applicant was, thereafter, remanded into custody from time to time. The complaint came to be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which were found by the Income Tax Department, during the course of the search, were forwarded to the Directorate of Enforcement. The documents received from the Income Tax Department contained several transfer instructions issued by the Applicant to transfer various amounts to different persons from the Bank Accounts held by him outside India. The amounts involved in the instructions were running into billions of dollars. The Income Tax Department assessed the total income of the Applicant for the Assessment Years from 2001-2002, 2002 to 2007 and 2007 to 2008 as ₹ 110,412,68,85,303/-. During the course of investigation, the Directorate of Enforcement obtained a notarized document signed by the Applicant on 29th June, 2003 at London. It was notarized by one Mr. Nicolas Ronald Rathbone Smith, Notary Public of London, on 30th June, 2003. On the investigations conducted under the Foreign Exchange Management Act, 1999, (hereinafter referred to as the FEMA ), show cause notices were issued to the Applicant for violation of Sections 3A and 4 of the FEMA for dealing in for acquiring and holding foreign exchange to the extent of US $ 8000453000, equivalent to Indian cur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties relating to scheduled offences, which they were projecting as untainted property . It is asserted that the properties acquired by the Accused persons are nothing but proceeds of crime and it is further emphasized that the evidence collected did not, even remotely, indicate that the properties were acquired by lawful means. 8. The contention of Mr. Bagaria, the learned Advocate for the Applicant, is basically that there is no material with the Directorate of Enforcement to justify the allegation that has been levelled against the Applicant. He submitted that the whole case is based on certain documents and the so called admissions made by the Applicant, which, according to him, have no evidentiary value. He also submitted that, even otherwise, there is no material to show that the property, which the Applicant allegedly had, was proceeds of crime within the meaning of Clause (u) of Section 2(1) of the PML Act. Additionally, a number of contentions on the legal aspects have been advanced by Mr. Bagaria, the learned Advocate for the Applicant. 9. Mr. Khambata, the learned Additional Solicitor General, on the other hand, submitted that there was overwhelming evidence ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Applicant, if any, would also need to be assessed, keeping in mind that the statements have been recorded while he was in custody and the prolonged period of custody would also have a bearing on this issue. However, in the view that I am taking, I do not feel it necessary to enter into a deeper discussion on this aspect, atleast at this stage, and what needs to be observed is that, prima facie, indeed, it appears that the Applicant had several Accounts in Foreign Banks, and that huge amounts were in the credit of atleast some of these Accounts. 12. At this stage, the relevant provisions in the PML Act may be noticed. 13. The offence punishable under Section 4 of the said Act has been defined in Section 3 thereof. Section 3 of the PML Act reads as under :- 3. Offence of money-laundering - Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be guilty of offence of money-laundering. 14. The term proceeds of crime has been defined in Clause (u) of Section 2(1) of the said Act, which read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, that it becomes necessary for a criminal to make the proceeds of crime appear to be generated in some other way, i.e. by some other lawful source, and it is for this purpose that money is laundered. Therefore, the existence of a scheduled offence is a sine-qua-non for the offence of money-laundering. 19. Since the emphasis of Mr. Khambata, the learned Additional Solicitor General, was more on the aspect of the Applicant s having possessed huge amounts in various Bank Accounts held by him in Foreign Banks, which would, undoubtedly, invite action for the violation of the provisions of Income Tax Act and FEMA, but not necessarily point out an offence punishable under Section 4 of the PML Act, Mr. Khambata, the learned Additional Solicitor General, was specifically asked to address on the issue as to whether there is material to show, though prima facie, that the amounts held by the Applicant were proceeds of crime. It was specifically asked as to which scheduled offence the prosecution alleges as having been committed by the Applicant or by anybody else. The Scheduled Offences allegedly involved in this case are said to be - (i) the offences punishable under the Passp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be suggested that a person can be prosecuted for the offence punishable under Section 4 thereof. In the instant case, most of the transactions, which are the subject matter of the case against the Applicant, have taken place before coming into force of the PML Act. They cannot be the subject matter of prosecution for the offence punishable under the PML Act. It was faintly suggested, to over come this difficulty, that the offence of money-laundering is a continuing offence. This contention, - if it is intended thereby to suggest that even the cases where the money-laundering had already been done before the commencement of the PML Act, would give rise to the prosecution under the provisions of the PML Act, - has to be rejected forthwith. Since, ultimately, however, not much turns on this aspect so far as the present Bail Application is concerned, I do not wish to discuss this aspect any further. 22. There is also another aspect of the matter. The essence of the offence defined in Section 3 of the PML Act is projecting proceeds of crime as untainted property . One would think that it is only when a legitimate source of the earning with respect to the tainted property, i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submitted that the definition of proceeds of crime is very wide, and that it involves deriving or obtaining of property directly or indirectly by any person as a result of criminal activity relating to scheduled offence . Thus, he emphasized the word result and the phrases directly or indirectly and criminal activity relating to a scheduled offence . According to him, it need not be the direct result of commission of a scheduled offence. His argument runs thus:- by committing the offence under the Passports Act, the Applicant could go out of India and open a Bank Account abroad. The Applicant could not have gone out of India without committing the offence under the Passports Act, as his previous Passport had been seized. Thus, it is by committing the offence under the Passports Act, i.e. a scheduled offence, that the Applicant could go out of India; and that, because he could go out of India, he could open an Account in a Foreign Bank. Therefore, the money, that was credited into that Account, would be property derived or obtained , as a result of criminal activity relating to a Scheduled Offence. This argument is farfetched and shows a feeble attempt to wriggle out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays Bank for further credit into the Accounts of M/s. S.K. Financial Services. However, the Applicant has never admitted that the amount of US $ 7,00,000 was the proceeds of the said offences. All that he has admitted in his statement, - on which much emphasis is placed ,- (found in Page No.394 Volume III of the annexures to the complaint) is that he had brokered purchase of one Diamond value of US $ 700,000 for Mr. Styrer through Shri Mohammed Hussain of Diamoor Jewellery, Dubai, and that he received a commission of US $ 30,000 for the same from Shri Mohammed Hussain, which was spent by him in shopping at Dubai and Zurich . It may be recalled that the F.I.R. in respect of the said offences has been registered recently, i.e. on 1st May, 2011, and there is nothing to show that the amount of ₹ 7,00,000 dollars in any way relates to the commission of the said offences. What are the facts mentioned in the said F.I.R. has not been disclosed. The complaint mentions that the F.I.R. has been lodged on a reference made by the Directorate of Enforcement to the Commissioner of Police, Hyderabad. Even if the possibility of the F.I.R. having been deliberately lodged to show the commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e offences under the Passports Act to sustain the accusation of money-laundering, without referring to the scheduled offences, which have or could have generated such huge amount. It has already been observed that the allegation regarding theft of a Diamond of the jewellery of Nijam has not at all been supported by any material. 26. The truth of the matter, at this stage, appears to be that the Applicant, indeed, held several Accounts in Foreign Banks, and that he had huge money transactions in those Accounts. Where did the money came from, what was the source of the money, whom did it belongs , where did it go, or whether it is still there, is, however, not at all clear. Even in the statements of the Applicant, that have been recorded, the emphasis of the Questioning Officer does not seem to be on ascertaining the source of the money or towards ascertaining what was the activity which led to the generation of such huge amounts. The amounts involved in the matter are so huge that if these are proceeds of crime, obviously many serious crimes have been committed, but the details of which are not forthcoming. These offences could be the one originally suspected, as they would be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of further material was expected. 29. If the scheme of the PML Act is examined, it is clear that the Scheduled Offence and the offence of money-laundering, both, shall be tried by the Special Court constituted under the PML Act. Section 44 of the PML Act is clear on this. Similarly, the provisions of Section 45, which curtail the discretion of the Court in the matter of release of an accused person, interestingly, refer not to an offence punishable under Section 4 of the PML Act, but refer to a scheduled offence of a certain category. Sub-section 1 thereof reads as under : 45. Offences to be cognizable and non-bailable.- (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974) no person accused of an offence punishable for a term of imprisonment of more than three years under part A of the Schedule shall be released on bail or on his own bond unless - ............................... (Emphasis supplied). 30. This leads to no other conclusion except that the commission of a Scheduled Offence must necessarily be alleged before the Special Court, and that such offence/s must also be tried by the Special Court in the trial in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out some unlawful activities. The criminal activities, if any, which led to the generation of such money were required and expected to be detected in the course of investigation, but instead of doing so, reference has been made to the commission of offences under the Passports Act to somehow bring the case within the purview of the PML Act. To take aid of the offences under the Passports Act to justify the accusation of money-laundering without touching the aspect as to from where and by which activity such huge amounts were generated, indeed, reflects adversely on the success, - and perhaps the sincerity, - of the investigation. These failures cannot be overcome or covered up by claiming that the Applicant should not be released on bail. Detaining the Applicant further in custody without any prospects of commencement of the trial within a reasonable time cannot be the solution to the problem apart from being improper. In this case, no scheduled offence under Part A of the Schedule being involved, the discretionary powers of the Court in the matter of bail are not curtailed in any manner. Considering all the relevant aspects of the matter, in my opinion, it would be just and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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