Introduction
A single judge bench of the Hon’ble High Court of Delhi delivered a significant ruling in the matter of Adnan Nisar v. Directorate of Enforcement and other connected matters[1], on September 17, 2024, holding that an offence committed in a foreign country can be classified as Predicate Offence, under the Prevention of Money Laundering Act, 2002, provided it has cross-border crime implications and the proceeds have travelled back to the Indian territory.
Factual Background
Three bail applications were filed before the Court under Section 439 of the Code of Criminal Procedure, 1973 (“CrPC”), and Section 45 of the Prevention of Money Laundering Act, 2002 (“PMLA”), for grant of regular bail. Charges were registered under Section 3 and 4 of the PMLA. The petitioners (collectively referred to as the “Co-accused”), were implicated in a cryptocurrency fraud, which was uncovered following a complaint by a victim in the United States of America (“USA”), who reported significant financial losses to the measure of $527,615.45.
The victim had reported that certain cryptocurrencies were fraudulently transferred from their ‘Ledger Hardware’ wallet in August 2022. Investigations revealed that these transactions traced back to Vishal Moral’s WazirX trading account, uncovering a network of individuals, inter alia the other two accused, involved in orchestrating the fraud. Following a Mutual Legal Assistance Request (“MLAR”) from the US Department of Justice, detailing accusations of wire fraud and money laundering against Mr. Moral, the Enforcement Directorate (“ED”) commenced its investigations.
During searches conducted at Mr. Moral’s residence under Section 17 of the PMLA, the ED seized electronic devices and cash amounting to INR 25,60,000. It was also discovered that he had used malware to compromise the victim’s wallets, while engaging in schemes to convert the stolen cryptocurrencies into cash for creation of immoveable assets. Accordingly, the ED concluded that the offenses investigated by the US Department of Justice corresponded with Section 75 of the Information Technology Act, 2000 (“IT Act”), as well as Sections 420 and 424 of the Indian Penal Code, 1860 (“IPC”), leading to the arrest of the accused, under Section 19 of the PMLA.
Contention of the parties
On behalf of one of the petitioners, it was contended that the proceedings initiated by the ED under Sections 3 and 4 of the PMLA were contrary to law and that the Special Court had taken mechanical cognizance of the complaint filed by the ED without knowledge of either the victim’s identity or the MLAR. It was further asserted that the scope of the MLAR was limited to ensuring that the WazirX accounts mentioned therein were seized and frozen; however, the ED had overreached by initiating a separate investigation based on an offense committed abroad. Reliance was placed on judgments such as Vijay Madanlal Choudhary v. Union of India[2] (“Vijay Madanlal”) and P. Chidambaram v. Directorate of Enforcement[3] to argue that prosecution under the PMLA necessitates clear establishment of a scheduled offense within Indian jurisdiction; otherwise, charges cannot be sustained. Counsel for Co-accused supported these submissions, arguing further that the proceedings initiated under Sections 3 and 4 of the PMLA were flawed and that the ED had exceeded its authority by investigating an offense that had occurred outside India.
Conversely, on behalf of the ED, it was asserted that a scheduled offence was evident in this case because the investigated offence corresponded to offences under the IT Act and the IPC. The counsels for ED provided proof by way of blockchain analysis to demonstrate that the stolen cryptocurrency had in fact been transferred into Mr. Moral’s accounts. ED stressed upon the elaborate roles played by the other Co-accused in orchestrating such a fraud and Mr. Moral’s statements during interrogation under Section 50 of the PMLA were inconsistent.
ED’s arguments in detail
Firstly, counsels for the ED relied on both the MLAR and the “Treaty Between the Government of India and the US on Mutual Legal Assistance in Criminal Matters” (“Treaty”) to contend that an investigation across borders is a necessary corollary to filing a complaint, thereby triggering relevant provisions under the PMLA. Secondly, reliance was placed on the judgement of Vijay Madanlal to assert that PMLA is a sui generis legislation against money laundering; thus, it may be activated when an offense has been committed in a contracting state and its proceeds have crossed into India. Thirdly, an arrest is an inherent power during investigations, aimed at collecting evidence[4]. Lastly, addressing claims of jurisdictional overreach, it was argued that since proceeds had entered Indian jurisdiction, money laundering would be deemed to have been committed in India, according to Section 2(2) of PMLA, which allows for interpretation of corresponding laws to be inclusive of foreign law[5]. In conclusion, it was emphasised that the ED was solely investigating money laundering offenses within its jurisdiction rather than any predicate offense.
Observations of the Court –
Offence under foreign law as scheduled offence
While the PMLA confers extraterritorial jurisdiction to the Directorate of Enforcement where the offence has cross-border implications, the Delhi High Court in this judgement clarified that for the ED to take action, there must be a corresponding scheduled offence recognised under Indian law, even if it were committed in foreign territories. The Court opined that crimes committed outside India can be prosecuted under the PMLA if such offence corresponds to those under Part C of the Schedule to PMLA (“Schedule”). An offence is classified as having ‘cross border implications’ under Section 2(1) (ra) of the PMLA if: (i) it was committed outside India and would constitute an offence under Part A-C of the Schedule and the proceeds have been transferred to India; or (ii) if the scheduled offence occurred in India and the proceeds travelled to a place outside. On a conjoint reading of Part C of the Schedule with Sections 2(1)(ia), 2(1)(ra) and 2(2) of the PMLA, the Court concluded that offences in Part C of the Schedule may be treated as predicate offences, if they have any cross-border implications. The Court noted that the definition of ‘corresponding law’ had been inserted by way of a 2013 amendment to the PMLA, which clarifies that it would mean any law of any foreign country dealing with such offences that may correspond to scheduled offences under the PMLA.
Basis the present facts, the Court noted that while a predicate offence can only be tried as per the corresponding US Laws and Section 44(1)(c) of the PMLA would have no bearing on the situation, there was a movement of proceeds of crime into India, which established significant links to the offence committed in the US and therefore the ED must be permitted to investigate and prosecute the standalone offence under the PMLA.
MLAR and Powers of the Authority under the Act
The Court examined the intent behind the incorporation of Chapter IX of the PMLA, relying on Article 1 of the Treaty, which binds Contracting Parties to provide mutual assistance in various forms to the ‘widest measure’, including (i) taking testimony; (ii) providing records; (iii) executing search and seizure requests; and (iv) assisting in forfeiture proceedings. The Court specifically observed that the MLAR issued in the present matter referenced the Treaty, while seeking assistance to obtain evidence on criminal investigations. Upon reviewing Section 60 of the PMLA, the Court concluded that while a contracting state may limit its request to attachment or freezing properties in India, executing such requests necessitates inquiry or investigation. The Court upheld that arrest is part of investigatory procedures and that the ED can arrest an accused once a case is lodged under Sections 3 and 4 of the PMLA. Most importantly, if the ED is satisfied that an investigated offence corresponds to scheduled offences under the PMLA and the proceeds have entered India, it can register an offence under Sections 3 and 4 without needing an MLAR. The Court also observed that although the predicate offence occurred in the US, the proceeds travelled to India, making it a standalone offence under the PMLA, thus requiring no sanction mandated by the proviso to Section 188 of the CrPC.
Concluding, the Court noted the lack of any material on record to establish even prima facie that the alleged predicate offence corresponds to the offences mentioned in the Schedule to the PMLA. It observed that in the absence of reasonable grounds to believe that the Accused were not guilty, as per Section 45 of the PMLA, the petitioners had made out a sufficient case for the grant of regular bail and disposed off the applications accordingly.
Conclusion
This judgement of the Delhi High Court is a significant step in the development of PMLA jurisprudence. Firstly, it reaffirms Vijay Madanlal to clarify that for the prosecution of any offence under the PMLA, a scheduled offence corresponding to the Indian law must be established, despite the jurisdiction of their commission. If the proceeds of crime to such offence have made their way to India, the ED shall be empowered to investigate under the PMLA, including making arrests and/ or seizing arrests during the course of its investigation, while also strengthening the authority bestowed onto the ED to act on cases where the proceeds of crime have entered India, inspite of the commission of a foreign offence. Lastly, the judgement reinforces the need for and importance of international cooperation in combatting financial offences/ crimes. The decentralised and borderless nature of cryptocurrencies highlights the necessity for more robust international collaboration. In light of the same, the present judgement may precedentially influence how assistance is extended to foreign investigatory bodies in similar scenarios of prosecution.
For further information, please contact:1
Ankoosh Mehta, Partner, Cyril Amarchand Mangaldas
ankoosh.mehta@cyrilshroff.com
[1] Bail Application No. 3056/2023; Bail Application No. 3168/2023; and Bail Application No. 3529/2023.
[2] 2022 SCC OnLine SC 929.
[3] (2019) 9 SCC 24.
[4] H.N. v. State (Delhi Administration), 1954 2 SCC 934.
[5] Ahsan Ahmad Mirza & Ors. v. Enforcement Directorate & Anr., 2019 SCC OnLine J&K 1026.
