Legal Rigour in Economic Offences: Bombay HC Examines the Continuing Offence & Threshold for Bail under PMLA

Introduction

The recent decision of the Bombay High Court (‘BHC’) in Badshah Majid Malik v. Enforcement Directorate (‘ED’)[i] underscores its stringent stance on economic offences and money laundering, particularly in denying bail to the applicant involved in the smuggling of Red Sanders and subsequent laundering activities. This case highlights the ED's extended jurisdiction and investigative powers under the Prevention Money Laundering Act, 2002 (‘PMLA’). This decision reaffirms that money laundering is a continuing offence, necessitating accountability for serious economic crimes irrespective of the dates of predicate offences.

Facts

• Background: This case pertained to the bail application filed by the applicant in connection with an enforcement case information report (‘ECIR’) recorded in 2021, which was based on a prosecution complaint filed by the Directorate of Revenue Intelligence (‘DRI’) in 2017.

• Initial Investigation: In 2015, the DRI received intelligence that red sanders were smuggled in a consignment falsely declared as fabric/glue/radiators/assorted colours, using forged documents from special economic zones (SEZ). Upon examination, red sanders worth Rs. 3.12 crores were seized.

• Syndicate Involvement: Subsequent investigations identified the applicant as the leader of a smuggling syndicate with a history of similar offences, including being detained under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (COFEPOSA) in 2005 for availing duty drawback on forged documents. The investigation revealed that the syndicate allegedly smuggled seventeen red sanders consignments valued at Rs. 47 crores before their interception in 2015. As a result, the DRI invoked ss. 132, 135(1)(a)(ii), and 135(1)(b)(ii) read with s. 140 of the Customs Act, 1962 (‘Customs Act’) and filed a prosecution complaint.

• Money Laundering: The investigation revealed that the applicant and other accused individuals had used five shell companies to launder money obtained from the illegal export of red sanders since 2008. These fictitious entities facilitated the movement and disguise of illicit funds, making them appear legitimate. The shell companies purchased shares of Empire India Multi-trade Pvt. Limited (‘EIM’)to convert the tainted money into clean assets.

• Search and Seizure: In 2021, searches were conducted at eight premises connected to the applicant under s. 17 of the PMLA, leading to the seizure of incriminating documents and records. Statements from the applicant were recorded under s. 50 of the PMLA. Consequently, an ECIR was registered as ss. 132 and 135 of the Customs Act are scheduled offences under the PMLA.

• Applicant’s Argument: The applicant argued that the trial could not be started within a reasonable time as the charge sheet for the predicate offence had not yet been committed to the Sessions Court. He questioned the legality of the ED’s investigation extending beyond 2014-15.

• Respondent’s Argument: The respondent contended that the applicant had been involved in serious economic offences and had a history of criminal activities. The respondent also asserted that, in view of the stringent provisions of the PMLA under s. 45, the bail application should not be allowed. It was further argued that the applicant failed to demonstrate the absence of reasonable grounds for believing that he is not guilty and is not likely to commit any offence if released.

Held

• The BHC rejected the bail application, finding that the applicant had been involved in smuggling red sanders from 2008 to 2010 and had resumed these activities in 2014. It noted that the ED’s evidence clearly showed that the property in question had directly resulted from the criminal activity of smuggling red sanders, qualifying as proceeds of crime as defined under s. 2(1)(u) of the PMLA.

• The BHC further held that the proceeds of crime from smuggling Red Sanders since 2008 had been laundered under the guise of share subscription premiums for EIM, involving five Benami companies controlled by the applicant and other co-accused.

• It was observed that even though the ED’s investigation had covered money laundering related to the period from 2014 to 2015, the ED has the jurisdiction to investigate continuing money laundering offences, regardless of the date of the scheduled offence. It was noted that the offence of money laundering was not linked to the date of the scheduled offence but to the date of involvement with the proceeds of crime.

• The BHC weighed several factors, including the seriousness of the charges, the strength of evidence, potential penalties, the applicant’s background, and the risk of witness tampering. Given the twin conditions in PMLA and the applicant’s history of smuggling, the BHC found that the applicant had failed to demonstrate reasonable grounds for his innocence or that he would not commit any offence while on bail.

Our Analysis

This decision is important because it underscores the courts' rigorous approach to economic offences and money laundering. By denying bail to the applicant, the BHC emphasises the severity of smuggling activities, the laundering of proceeds through complex financial schemes, and the broader implications for financial integrity and national security. It also highlights the ED's extended jurisdiction and investigative powers under the PMLA, reinforcing that money laundering is a continuing offence not confined by the dates of the predicate offence. This decision affirms the principle that those involved in serious economic crimes and their laundering activities must be held accountable, even if the predicate offences occurred in the past.

End Note

[i] [2024] 164 taxmann.com 87 (Bombay), dated: 19.06.2024.

Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.