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SC Criticizes ED in Shine Group Case & Explains PMLA Bail Exception for Women

SC Criticizes ED in Shine Group Case & Explains PMLA Bail Exception for Women

16-01-2025
  1. On January 15, 2025, the Supreme Court of India (SC) ruled against the Enforcement Directorate (ED) for misinterpreting a key rule in the Prevention of Money Laundering Act (PMLA), in the bail plea of Shashi Bala.
  2. The case involves the Shine City Group, a real estate company accused of cheating investors out of Rs. 800-1000 crore.
  3. The SC granted bail to Shashi Bala, a government school teacher, even though the ED opposed it, arguing that the PMLA's exception for women should not apply in her case.

What is Money Laundering?

Money laundering is the illegal process by which criminals conceal the origins of illegally obtained funds. It involves a series of financial transactions designed to make illicit money appear legitimate. Criminal activities such as drug trafficking, corruption, tax evasion, fraud, and terrorism financing typically generate the illicit funds that are laundered.

Stages of Money Laundering

  1. Introduction of illicit funds into the financial system.
  2. Methods include depositing money into bank accounts, currency exchange, or buying valuable assets like art or real estate.
  3. Disguising the source of funds by moving money through complex financial transactions.
  4. This can involve transferring funds across borders, changing the form of the money (e.g., into stocks or bonds), or using shell companies.
  5. Reintroducing laundered funds into the legitimate economy.
  6. Methods include investing in businesses, real estate, or other assets that can be resold, thus making the money appear clean.

Common Methods of Money Laundering

  1. Breaking large sums of illicit money into smaller, less suspicious amounts.
  2. These smaller amounts are deposited into multiple bank accounts to avoid detection by regulatory authorities.
  3. Manipulating trade transactions to disguise the movement of money across borders.
  4. Criminals may overstate or understate the value of goods being traded to move illicit funds.
  5. Shell Companies:Establishing fake companies that engage in no legitimate business, allowing criminals to funnel illicit money through seemingly legitimate transactions.
  6. Buying and selling properties to convert illicit money into legitimate wealth.
  7. Real estate is an attractive vehicle for laundering money due to its high value and ability to appreciate over time.

Recent Key Points :

1. The Shine City Group Case: Background & Allegations:

  1. Shine City Group: A real estate company based in Lucknow, accused of running a large-scale investment fraud. The group collected a lot of money from the public, promising high returns on real estate investments, but never provided the returns.
  2. Total Defrauded: The company defrauded investors of Rs. 800-1000 crore, leading to over 550 FIRs filed by the Uttar Pradesh Police.
  3. The Enforcement Directorate (ED) started an investigation based on these fraud reports.
  4. Rasheed Naseem, the promoter of the Shine City Group, is the main accused but is currently fleeing from authority.
  5. Shashi Bala’s Role:
    1. Bala, a government teacher, is accused of helping Naseem in hiding the illegal profits.
    2. She allegedly received over Rs. 36 lakh as part of the money laundering operation.
    3. She was arrested by the ED in November 2023.

2. Legal Framework: The PMLA and Bail Provisions:

  1. The PMLA has strict rules for granting bail in money laundering cases.
  2. Under Section 45(1), the accused must prove that there is no strong case against them and convince the court that they are not a threat to the investigation or likely to flee.
  3. This provision is meant to deal with serious financial crimes.

However, Section 45 includes an exception:

  1. Women, minors (under 16), and those who are sick or weak can be granted bail if the Special Court decides they are not a risk to the investigation or a flight risk.
  2. This is to protect vulnerable people from unnecessary harm.

3. ED's Argument: Opposition to Bail for Shashi Bala

The ED's Argument was that the usual strict bail conditions should apply to Shashi Bala, despite her being a woman. The ED argued that:

  1. The large scale of the fraud (Rs. 800-1000 crore) made Bala unfit for bail under the women’s exception.
  2. Her involvement in the crime, especially with the absconding Rasheed Naseem, made her dangerous and a possible threat to the investigation.
  3. However, the Supreme Court disagreed with the ED’s interpretation of the law.

4. Supreme Court’s Reprimand to the ED:

The Supreme Court Bench, led by Justices Abhay S. Oka and Augustine George Masih, criticized the ED for misunderstanding the law. Justice Oka commented:

  1. "If people who appear for the Union of India do not know basic provisions of law, why should they appear in the matter?"
  2. This showed the Court’s frustration with the ED's handling of the case.
  3. The Court emphasized that Section 45(1) of the PMLA clearly gives an exception for women, and this must be followed, regardless of the seriousness of the charges.

5. Court’s Decision: Granting Bail to Shashi Bala

Despite the ED’s objections, the Supreme Court decided to grant bail to Shashi Bala. The Court’s decision was based on several important factors:

  1. Time in Custody: Bala had been in custody since November 2023, and the trial was not likely to finish soon. The Court considered her prolonged detention in making the decision.
  2. PMLA’s Exception for Women: The Court pointed out that the PMLA’s provisions for women must be followed unless the woman is a flight risk or threatens the investigation.
  3. Legal Precedents: The Court referred to earlier cases where women were granted bail based on the same exception, making it clear that women in similar situations should be treated the same.

6. Legal Precedent: Previous Cases Involving Women’s Bail Under PMLA

  1. Preeti Chandra Case (2023):

    1. In June 2023, the Delhi High Court granted bail to Preeti Chandra, wife of Sanjay Chandra, a director of Unitech Group, under the same rule for women under PMLA.
    2. The ED argued that Preeti was not a “household lady” and should not be given the benefit of this exception.
    3. The Delhi High Court rejected this argument, ruling that the PMLA does not treat women differently based on their role in society or work.
    4. The Court also made it clear that a woman’s profession or social status does not change her entitlement to the protection under the PMLA’s bail provision.

7. Allahabad High Court’s Rejection of Bail:

Before appealing to the Supreme Court, Shashi Bala had approached the Allahabad High Court for bail in September 2024. The High Court rejected her bail request because:

  1. Bala’s links to Rasheed Naseem and the large-scale fraud (Rs. 800-1000 crore) made her seem too dangerous for bail.
  2. However, the Supreme Court overruled this decision, highlighting that the PMLA’s exception for women should be applied, and granted her bail.

Prevention of Money Laundering Act, 2002 (PMLA)

Objectives of PMLA

The Prevention of Money Laundering Act, 2002 (PMLA) was enacted in India to curb the illegal practice of money laundering. The main objectives of the PMLA are:

  1. Prevention: To implement strict measures to prevent money laundering activities by monitoring and regulating financial transactions.
  2. Detection: To detect and investigate money laundering offenses through strong enforcement and regulatory mechanisms.
  3. Confiscation: To confiscate the proceeds of crime derived from money laundering to disrupt illicit financial flows and deter offenders.
  4. International Cooperation: To promote global cooperation in combating money laundering and terrorist financing activities.

Key Provisions of PMLA

  1. Definition of Money Laundering (Section 3): Money laundering is defined as any attempt, involvement, or assistance in processes that involve the proceeds of crime, aimed at making them appear as legitimate property.
  2. Offences and Penalties (Section 4): Money laundering is punishable with rigorous imprisonment for not less than three years, extending up to seven years, along with the possibility of a fine.
  3. Attachment and Confiscation of Property: The Act allows for the attachment and confiscation of property involved in money laundering. An Adjudicating Authority is established to oversee these proceedings.
  4. Reporting Requirements: Banks and financial institutions must maintain records of transactions and report suspicious transactions to the Financial Intelligence Unit (FIU-IND).

Agencies' Powers under the PMLA

  1. Enforcement Directorate (ED): The ED is responsible for investigating money laundering offenses and attaching properties involved in such crimes. It operates under the Department of Revenue, Ministry of Finance.
  2. Financial Intelligence Unit-India (FIU-IND): FIU-IND is the central agency for receiving, processing, analyzing, and disseminating information about suspicious financial transactions.
  3. Other Investigating Agencies: Other agencies, such as local police, CBI, customs, and SEBI, investigate specific offenses listed under the PMLA.

Obligations under the PMLA:

Financial Institutions and Intermediaries: Banks, financial institutions, and intermediaries are obligated to verify client identities, maintain records, and report suspicious transactions to FIU-IND.

Key Structures under PMLA

  1. Adjudicating Authority:

    1. The Adjudicating Authority determines whether attached properties are connected to money laundering. This process must be concluded within 180 days.
    2. The Government of India (GoI) appoints the Adjudicating Authority.
  2. Appellate Tribunal: The Act provides for the establishment of an Appellate Tribunal to hear appeals against the orders of the Adjudicating Authority.
  3. Special Courts: Special Courts are designated to try offenses under the PMLA and related crimes.

Amendments to PMLA:

The PMLA has undergone several amendments over the years:

  1. Amendments in 2009 and 2012:

    1. 2009 Amendment: Expanded the scope of the Act to include criminal conspiracy (Section 120B of the IPC) and gave the Enforcement Directorate (ED) international jurisdiction for tracking laundered money.
    2. 2012 Amendment: Moved the Prevention of Corruption Act (PC Act) to Part A of the statute's schedule, imposing stringent bail conditions on accused public servants.

  2. 2023 Amendment:

    1. Defined Politically Exposed Persons (PEPs) as individuals holding prominent public functions.
    2. Expanded the list of non-banking reporting entities, such as Amazon Pay, to enhance the monitoring of financial transactions.
    3. Implemented Know Your Customer (KYC) norms for better identification and reporting of suspicious transactions.

Concerns Regarding PMLA:

While the PMLA has been a crucial tool for combating money laundering, several concerns have been raised about its provisions:

  1. The law includes small crimes, like copyright violations, which weakens its focus on major economic crimes.
  2. PMLA treats minor crimes, like corruption, the same as serious crimes, like drug trafficking, which some say is unfair.
  3. The wide definition gives authorities too much power, leading to possible misuse.
  4. Strict Bail Conditions: Bail is only allowed if the accused proves their innocence, which goes against the idea that someone is innocent until proven guilty.
  5. Burden of Proof on the Accused: The accused must prove their innocence, which could make trials less fair.

  6. Violation of Fundamental Rights:

    1. Article 21 (Right to Life and Liberty): The failure to disclose the Enforcement Case Information Report (ECIR) against an accused person violates their right to know the allegations against them.
    2. Article 14 (Right to Equality): Treating a public servant charged with corruption the same as a hardcore criminal violates the fundamental right to equality.
    3. Article 20(3) (Right Against Self-Incrimination): The powers granted under the PMLA to summon and interrogate individuals may violate the right against self-incrimination.

  7. Extensive Powers to Authorities:

    1. The ED is granted extensive powers of summons, arrest, and raids, which critics argue may lead to potential misuse and overreach.

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