BA-994-11.sxw 1 Dixit IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION CRIMINAL BAIL APPLICATION NO.994 OF 2011 Hasan Ali Khan S/o. Ghousudin Ali Khan ... Applicant V/s. Union of India, Thru’ Asst. Director, Directorate of Enforcement, Mumbai & Anr. ... Respondents Mr. I.A. Bagaria with Ms. Uma Bagaria, Mr. Vikrant Sabne, Mr. Vipul Jain and Mr. Sandeep Batuvia for the Applicant. Mr. D.J. Khambata, ASG, with Ms. Revati Mohite-Dere for Respondent No.1. Mrs. S.D. Shinde, APP, for Respondent No.2. CORAM : A.M. THIPSAY, J. RESERVED ON : 1 ST AUGUST, 2011. PRONOUNCED ON : 12 TH AUGUST, 2011. P.C. : 1. The Applicant is the Accused No.1 in Special Case No.1 of 2011. There is one more Accused in the said case, i.e. Kashinath Tapuriah, mentioned as the Accused No.2 therein. The allegation against the Applicant and the other BA-994-11.sxw 2 Dixit Accused is that they have committed the offence punishable under Section 4 of the Prevention of Money-Laundering Act, 2002, (hereinafter referred to as "the PML Act"). The said case arises on the basis of a complaint filed by the Deputy Director, Directorate of Enforcement, Ministry of Finance, Department of Revenue, Government of India. 2. The Applicant was arrested in the said case on 7th March, 2011. He was produced before the Special Court 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 BA-994-11.sxw 3 Dixit 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 filed on 6th May, 2011. The application for bail made by the Applicant before the Special Court was rejected by the learned Judge. The Applicant has now approached this Court for bail. 3. I have heard Mr. Bagaria, the learned Advocate for the Applicant, at length. I have also heard Mr. Khambata, the learned Additional Solicitor General, for Respondent No.1, and Mrs. Shinde, the learned APP for Respondent No.2. 4. A number of contentions on facts and also on law have been raised by Mr. Bagaria, the learned Advocate for the Applicant, and also by Mr. Khambata, the learned Additional Solicitor General for the Union of India. I have been taken through the Bail Application and four affidavits-in-reply filed by the Union of India opposing the Bail Application. Apart from the oral submissions, several submissions in writing – on facts and also on law – have BA-994-11.sxw 4 Dixit been made by Mr. Bagaria, the learned Advocate for the Applicant, and Mr. Khambata, the learned Additional Solicitor General for the Union of India, and reliance has been placed on a number of pronouncements of the High Courts and also of the Apex Court, in support of their respective contentions. 5. The facts of the present case, as appearing from the complaint may, briefly, be stated as under : 6. The case against the Applicant (and the other Accused) was registered by the Directorate of Enforcement as back as on 8 th January, 2007 vide Enforcement Case Information Report No.02/MZO/2007. It was on the basis of certain information and documents received from the Income Tax Department. The Income Tax Department had carried out some searches in the premises owned / possessed by the Applicant and had found documents indicating that the Applicant Hasan Ali Khan was dealing in foreign exchange. The Income Tax Department, by a letter dated 8 th January, 2007 , reported to the Directorate of Enforcement that during the search at the residence of the Applicant at Peddar Road, Mumbai, cash of Rs.88,05,000/- was seized. A number of imported watches and some jewelery were also found during the said search. It BA-994-11.sxw 5 Dixit was also found that the Applicant had purchased an expensive car worth about Rs.60 lacs from one Anil Shankar of Bangalore through one Sheshadri, also from Bangalore, and that the Applicant had paid, till then, an amount of Rs.46 lacs towards the purchase of the said car. Certain documents, 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 Rs.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. BA-994-11.sxw 6 Dixit . 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 currency of Rs.36,000 crores approximately, in his account with Union Bank of Switzerland, AG, Zurich, Switzerland. . Inquiries also revealed that the Applicant Shri Hasan Ali Khan had obtained at-least three passports by submitting false documents, by making false statements and by suppressing the fact of already having a passport. . The analysis of documents forwarded by the Income Tax Department and the evidence collected by the Directorate of Enforcement revealed that the Applicant had kept a large number of Foreign Bank Accounts. For ascertaining the details of these Accounts and documents pertaining to transactions in those Accounts, Letters Rogatory to the Competent Authority in U.S.A., U.K. U.A.E., Singapore, Hong Kong and Switzerland were issued. Reply in respect BA-994-11.sxw 7 Dixit of the Letters Rogatory issued to the Competent Authority in U.S.A. was received on 29th March, 2010, wherein it was stated that, as per the instructions of the Applicant, Sarasin Bank, Basel, Switzerland had transferred US $ 700,000 by debiting US $ Account maintained with Citi Bank, New York, and that the said amount was credited to the account of Barclays Bank, New York, who, in turn, had remitted the said amount of US $ 700,000 into equivalent amount in Sterling Pounds to Barclays Bank Head Office, London. Finally, the amount of Sterling Pounds 369081.51, equivalent to US $ 700,000, to Barclays Bank was further credited to the account of M/s. S.K. Financial Services. It was revealed that the Applicant had given instructions to Sarasin Bank for transfer of the said amount to M/s. S.K. Financial Services in their Account maintained with Barclays Bank, London. . In the course of investigation, statements of the Applicant were recorded under Section 50(3) of the PML Act, the details whereof have been given in the complaint. Statements of several persons, including that of the co-accused Kashinath Tapuriah, the wife of the Applicant, were recorded under the same provisions. BA-994-11.sxw 8 Dixit . The investigation also revealed that the Applicant had sold a Diamond belonging to Nijam and routed the sale proceeds through his Account in Sarasin Bank to Barclays Bank. 7. The conclusions of the complainant are recorded in para 3 of the complaint, which are to the effect ‘that the Applicant and the other Accused had derived and obtained various properties directly or indirectly as a result of criminal activities 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 BA-994-11.sxw 9 Dixit 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 available with the Enforcement Directorate to show the prima-facie involvement of the Applicant in the alleged offences. He referred to various provisions under the PML Act and highlighted, in particular, the provisions of Sections 24 and 45 of the said Act. 10. The complaint is running into 43 pages and the annexures thereto are running into 768 pages. With the assistance of the learned Counsel for the parties, I have glanced through the relevant record. 11. A number of contentions have been raised by Mr. Bagaria, the learned Advocate for the Applicant, dealing with the allegation that the Applicant was holding various Accounts in Foreign Banks, and that these Accounts had huge BA-994-11.sxw 10 Dixit amounts in their credit. He submitted that there is no material or communication from the said Banks giving the details of such Accounts and indicating that, indeed, such Accounts had been opened and maintained by the Applicant. According to him, only on the basis of the statements made by the Applicant that he had a number of Accounts in Foreign Banks, and that he had huge amounts into the credit of those Accounts, this aspect cannot be established. He suggested that a person may make a false claim of his possessing certain properties for various reasons and merely because a person has made such a claim, that claim cannot be accepted as a fact. It is true that much of the material available with the Directorate of Enforcement consists only in the form of statements of the Applicant, of the co-accused and some other persons, recorded under Section 50(3) of the PML Act. The Directorate of Enforcement has, so far, not been able to obtain any record or details of the relevant transactions from the concerned Banks, in spite of the fact that the case was registered more than four years back, and that the Applicant has been in custody since 7th March, 2011. Undoubtedly, the value to be attached to the statements of the Applicant, recorded under Section 50(3) of the PML Act, in the trial for the offence punishable under Section 4 of the PML Act, would need consideration during the trial. Similarly, the statements made by the co- BA-994-11.sxw 11 Dixit accused, which exonerate himself, but implicate the Applicant, how far can be used against the Applicant, - not in the adjudication proceedings, but during his trial, - would also need serious consideration. The voluntariness of the confessional statements made by 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 BA-994-11.sxw 12 Dixit 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 reads as under :- “2(1)(u). “proceeds of crime” means any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property ” 15. “Scheduled Offence” has been defined in Clause (y) of Section 2 of the said Act, which reads as under :- “2(1)(y). Scheduled Offence means - (i) the offences specified under Part A of the Schedule; or (ii) the offences specified under Part B of the BA-994-11.sxw 13 Dixit Schedule if the total value involved in such offences is thirty lakh rupees or more; or (iii) the offences specified under Part C of the Schedule.” 16. Clause (x) of Section 2(1) of the said Act clarifies that "Schedule" means the Schedule to the said Act. 17. Thus, the ingredients of the offence of money-laundering punishable under Section 4 of the said Act are as follows :- (i). Commission of a scheduled offence or an attempt to commit the same; (ii). Property or the value of any property is derived or obtained by any person as a result of criminal activity relating to such scheduled offence; (iii). Such property or the value of such property is projected as "untainted property". BA-994-11.sxw 14 Dixit 18. It has already been observed that from the averments made in the complaint and the material produced in support thereof, it does appear that the Applicant had several Accounts in Foreign Banks, and that huge amounts were in credit of at-least some of these Accounts. It, therefore, prima facie, appears that the Applicant has violated the provisions of the Income Tax Act and the provisions of FEMA. The crucial question, however, is whether there exists a prima facie case against the Applicant with respect to the offence of money- laundering punishable under Section 4 of the PML Act. In this regard, the crucial aspect would be whether the amounts, which are said to be in the various Accounts allegedly held by the Applicant, were proceeds of crime. The scheme of the provisions of the PML Act makes it clear that there has to be some scheduled offence or scheduled offences which would generate the money that is being laundered. A crime is committed. Money is earned illegally by committing the said crime, but the criminal cannot put the money earned by the crime into any use immediately, as this would immediately arouse suspicion and would provide evidence of the crime itself. It is, therefore, 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 BA-994-11.sxw 15 Dixit 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 Passports Act and; (ii) the offence relating to the theft of a Diamond from the Jewelery belonging to Nijam. BA-994-11.sxw 16 Dixit 20. The first contention advanced by Mr. Bagaria, the learned Advocate for the Applicant, with respect to the offences punishable under the Passports Act is that the offences under the Passports Act were included in the Schedule only on 1st June, 2009. He contended that the offence under the Passports Act was registered in Mumbai in the year 2007-2008, when it was not a scheduled offence. His contention is that the PML Act cannot be given a retrospective effect. In other words, according to him, the proceeds of a crime, which was not a scheduled offence at the time when it was committed, would not attract the applicability of the PML Act. This contention advanced by Mr. Bagaria does not seem to be sound. It is clear that the essence of the offence of the money-laundering is “projecting of the proceeds of crime as untainted property”. It is this ‘projecting’ that attracts the applicability of the penal provisions of PML Act. Now, where such sale proceeds, or the property derived from a crime, which, at that time, was not a scheduled offence, but was a scheduled offence when such sale proceeds or such property was projected as untainted, there would be no bar to the applicability of the PML Act. If the provisions of Section 3 of the PML Act are interpreted in this manner, it would not amount to giving retrospective effect to the said Legislation. If the proceeds of a crime, which has been declared as a ‘scheduled offence’ on the day on BA-994-11.sxw 17 Dixit which the ‘projection of such proceeds’ as ‘untainted’ is attempted or undertaken, the provisions of the PML Act would apply. Such a course, cannot be said to be violative of Article 20 of the Constitution. Since in the view that I am taking not much turns on this aspect, I refrain from discussing this aspect any further. 21. What, however, needs to be observed is that where even the projection of the proceeds of crime as ‘untainted’ has taken place before the commencement of the provisions of the PML Act, then the charge of an offence punishable under the PML Act cannot be levelled with respect to such transactions. In other words, the crucial date would be the date on which the projection of the proceeds of crime as ‘untainted’ takes place, and, if this has taken place before the commencement of the PML Act, then it 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 BA-994-11.sxw 18 Dixit 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.e. proceeds of crime, is suggested or attempted to be suggested that the offence punishable under Section 4 of the PML Act would be said to be committed. In other words, it requires consideration whether where a person having proceeds of crime in his possession puts them in a Bank Account and then transfers the same to another Account, he can be said to have projected that money as “untainted property”. The proceeds of crime would remain the proceeds of crime, irrespective of whether they are kept in the house, or deposited in a Bank Account, or kept with somebody else. Projecting them as “untainted property”, which is the BA-994-11.sxw 19 Dixit essence of the offence punishable under Section 4 of the PML Act, would involve offering of some explanation with respect to the acquisition of the said property and showing it to be having a lawful source of earning. My prima facie view in this regard is that it is only when an attempt is made to show the source of that money as something legitimate, it would amount to projecting the proceeds as ‘untainted property’. When this aspect was discussed in the course of oral arguments, Mr. Khambata, the learned Additional Solicitor General, submitted that an amount which is repeatedly transferred to various different Bank Accounts, it would be impossible to trace it to the scheduled offence from which it has been derived, and that, therefore, merely transferring from one Account to another and keeping on doing so would amount to projecting the property as ‘untainted property’. It is true that if the number of transfers are very high, it would be difficult to trace or detect the taint attached to such money and, if the transfers are made with that object, it may be said that the person resorting to such transfers has projected the property as “untainted”. For the present, I proceed on the basis that even this requirement – of projecting – has been fulfilled. 23. However, the next contention of Mr. Bagaria, the learned Advocate for BA-994-11.sxw 20 Dixit the Applicant, namely, that by committing the offences under the Passports Act, the Applicant did not receive or obtain any property, needs to be considered seriously. Obviously, by committing the offences under the Passports Act, the said property has not been ‘derived or obtained’. This was pointed out to Mr. Khambata, the learned Additional Solicitor General, who advanced an argument, which is quite interesting. 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,