2011 (9) TMI 847 - SC - Money Laundering

Money Laundering - Offence punishable under Section 4 of the Prevention of Money Laundering Act, 2002 - search in the premises owned and/or possessed by the Respondent No.1 - documents which were recovered by the Income Tax Department - Respondent No.1, Shri Hassan Ali Khan, used the different passports which he had acquired by submitting false documents, to open bank accounts in foreign countries to engage in the laundering of tainted money transfer of the huge sums from one bank to another was one of the methods adopted by persons involved in money-laundering to cover the trail of the monies which were the proceeds of crime - Held that - Having a foreign bank account and also having sizeable amounts of money deposited therein does not ipso facto indicate the commission of an offence under the PML Act, 2002. However, deposit of US 700,000 in the Barclays Bank account of the Respondent No.1 has not been denied. On the other hand, the allegation is that the said amount was the proceeds of the sale of diamond jewellery which is alleged to have been stolen from the collection of the Nizam of Hyderabad - total income of the Respondent No.1 for the assessment years 2001-02 to 2007-08 has been assessed at ₹ 110,412,68,85,303/- by the Income Tax Department and in terms of Section 24 of the PML Act, the Respondent No.1 had not been able to establish that the same were neither the proceeds of crime nor untainted property - Bombay High Court had granted bail to the Respondent No.1 on an incorrect interpretation of the law and the said order granting bail was, therefore, liable to be set aside - Order granting bail set aside

Issues Involved:
1. Legality of the High Court's decision to grant bail.
2. Allegations under the Prevention of Money Laundering Act (PML Act), 2002.
3. Violation of Foreign Exchange Management Act (FEMA), 1999.
4. Use of multiple passports and false documentation.
5. Connection with international arms dealer and transactions.
6. Application of Section 167(2) of the Code of Criminal Procedure (Cr.P.C.).
7. Burden of proof under Section 24 of the PML Act.
8. Distinction between cancellation of bail and appeal against bail order.

Detailed Analysis:

1. Legality of the High Court's Decision to Grant Bail:
The Supreme Court examined the Bombay High Court's decision to grant bail to the Respondent No.1, Hassan Ali Khan, under Crl. Bail Application No.994 of 2011. The High Court granted bail on 12th August 2011, which was contested by the Union of India on grounds of improper consideration of the evidence and the gravity of the allegations.

2. Allegations under the Prevention of Money Laundering Act (PML Act), 2002:
The Respondent No.1 was accused under Section 4 of the PML Act, 2002, for dealing with large sums of unaccounted money, which were allegedly proceeds of crime. The Directorate of Enforcement arrested him based on substantial evidence, including documents showing transfer instructions for billions of dollars from foreign bank accounts.

3. Violation of Foreign Exchange Management Act (FEMA), 1999:
Investigations revealed violations of Sections 3A and 4 of FEMA by the Respondent No.1, involving foreign exchange transactions amounting to approximately Rs. 36,000 crores in his account with the Union Bank of Switzerland, AG, Zurich, Switzerland. Show-cause notices were issued for these violations.

4. Use of Multiple Passports and False Documentation:
The Respondent No.1 obtained at least three passports using false documents and statements, which he used to open and operate foreign bank accounts. This act was crucial in the laundering of tainted money, as per the learned Additional Solicitor General (ASG).

5. Connection with International Arms Dealer and Transactions:
The Respondent No.1 was linked to international arms dealer Adnan Khashoggi through a notarized document obtained during the investigation, which mentioned his involvement in transactions related to arms deals. This connection was used to argue the gravity of the offence and the international ramifications of the money laundering activities.

6. Application of Section 167(2) of the Code of Criminal Procedure (Cr.P.C.):
The High Court's reliance on Section 167(2) Cr.P.C. to grant bail was challenged. The Supreme Court noted that the charge sheet was filed within the statutory period of 60 days, thus the provisions of Section 167(2) Cr.P.C. were not applicable. The precedents from Sanjay Dutt v. State through CBI, Bombay (II) and Uday Mohanlal Acharya v. State of Maharashtra were cited to support this interpretation.

7. Burden of Proof under Section 24 of the PML Act:
The Supreme Court emphasized that under Section 24 of the PML Act, the burden of proving that the monies involved were not proceeds of crime or untainted property lies on the accused. The Respondent No.1 failed to discharge this burden, as he did not provide any satisfactory explanation for the large sums of money in his foreign accounts.

8. Distinction between Cancellation of Bail and Appeal Against Bail Order:
The Court distinguished between an application for cancellation of bail and an appeal against an order granting bail. While cancellation relates to post-bail incidents, an appeal questions the legality of the bail order itself. This distinction was crucial in the Court's decision to set aside the High Court's order.

Conclusion:
The Supreme Court, after considering the submissions and the evidence, found that the High Court had erred in granting bail to the Respondent No.1. The enormous amounts of unaccounted money, the use of multiple passports, and the international connections warranted a different approach. The appeal was allowed, and the High Court's order granting bail was set aside, emphasizing the need to treat the case with the seriousness it deserved under the PML Act and related laws.

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