Case BriefsHigh Courts

Orissa High Court: S.K. Panigrahi, J., while addressing a matter with regard to money laundering by way of ponzi schemes, stated that,

“Act of money laundering is done in an exotic fashion encompassing a series of actions by the proverbial renting of credibility from the innocent investors.”

Petitioner has sought bail in a complaint case pending before Sessions Judge, Special Court under PMLA.

Cheating

Case under Sections 406, 420, 468, 471 and 34 of Penal Code and Sections 4, 5 and 6 of Prize Chits and Money Circulation Schemes (Banning) Act, 1978 was registered on the basis of a complaint alleging that the complainant had been cheated and defrauded by alluring to invest Rs 10,000 in the attractive investment scheme of Fine Indiasales (P) Ltd.

Complainant further submitted that he had introduced 20 more people to invest in the said scheme.

Complainant neither received the financial product nor the product voucher as per the agreement with FIPL.

FIPL collected huge amounts of money from the public and ultimately duped huge amount from innocent public by giving false assurance of high return for their deposit of money.

In view of the above, complainant requested for an investigation.

FIPL floated a fraudulent scheme

According to the investigation it was found that, FIPL had floated a fraudulent scheme with a terminal ulterior motive to siphon off the funds collected from public.

Ponzi Scheme

The advertised scheme of FIPL, ex-facie appeared to be a bodacious Ponzi scheme, inducing the susceptible depositors by way of misrepresentation, promising immediate refund in case of any default and timely payment of return on the part of FIPL.

Investigation prima facie established that the accused persons connected with  FIPL not only criminally conspired and cheated the depositors but also lured them into the scheme with a rogue mindset.

Machiavellian Layering | Shell Companies

Investigation revealed that the said money, stained with the sweat, tears and blood of multitudes of innocent people has since been moved around and subjected to Machiavellian layering through a myriad of shell companies and bogus transactions.

The collected amount was immediately transferred to different bank accounts of individuals as well as firms under the management and control of the Promotors/Directors/Shareholders of the said FIPL which is nothing but an act of sheltering.

Money Laundering

Modus Operandi adopted while transferring the prodigious sum of ill-gotten wealth with the singular intention of concealing the original source of funds and to project the tainted money as untainted ex facie constitute the offence of money laundering.

Court’s Observation

On the cursory look, Court prima facie observed that dishonesty, untruth and greed eroded the faith of common investors.

One of the significant stages of money laundering is “layering”, and in the present case, multiple use of corporate vehicles was done and the amount was layered further.

The act money laundering involves the process of placement, layering and integration of “proceeds of crime” as envisaged under Section 2 (u) of the Act, derived from criminal activity into mainstream fiscal markets and transmuted into legitimate assets.

“…laundering of tainted money having its origins in large scale economic crimes pose a solemn threat not only to the economic stability of nations but also to their integrity and sovereignty.”

Proceeds of Crime

Petitioner along with others attempted to project the “proceeds of crime” as untainted money by transferring the same to different bank accounts in a bid to camouflage it and project it to be genuine transactions.

Financial Terrorism

Bench added to its analysis that, offence of money laundering is nothing but an act of “financial terrorism” that poses a serious threat not only to the financial system of the country but also to the integrity and sovereignty of a nation.

Supreme Court’s opinion

Supreme Court of India has consistently held that economic offences are sui generis in nature as they stifle the delicate economic fabric of a society.

Faustain bargain

Perpetrators of such deviant “schemes,” including the petitioner in the present case, who promise utopia to their unsuspecting investors seem to have entered in a proverbial “Faustian bargain” and are grossly unmindful of untold miseries of the faceless multitudes who are left high and dry and consigned to the flames of suffering.

Reputational Damage of the Country

Abuse of financial system in the manner that occurred in the present case can inflict the reputation of the country in the world of business and commerce.

Alleged offence of money laundering committed by the petitioner is serious in nature and the petitioner’s role is not unblemished.

Hence, Court refused bail to the accused/petitioner. [Mohammad Arif v. Directorate of Enforcement, Govt. of India, 2020 SCC OnLine Ori 544 , decided on 13-07-2020]


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Business NewsNews

Seeking to crackdown on shell companies, the government has proposed to remove exemption available to firms with tax liability of up to Rs 3,000 from filing IT returns beginning next fiscal. The Union Budget 2018–19 has rationalised the IT Act provision relating to prosecution for failure to furnish returns. Thus, a managing director or a director in charge of the company during a particular financial year could be liable for prosecution in case of any lapse in filing IT returns for any financial year beginning 01-04-2018. The income tax departments would now track investments by these companies. Also, the focus will be on those firms that show less profit and also those who file IT returns for the first time. There are around 12 lakh active companies in the country, out of which about 7 lakh are filing their returns, including annual audited report, with the Ministry of corporate affairs. Of this, about 3 lakh companies show ‘nil’ income.

The Section 276CC of the Income Tax Act, 1961 provided that if a person wilfully fails to furnish in due time the return of income, he shall be punishable with imprisonment and fine. However, no prosecution could be initiated if the tax liability of an assessee does not exceed Rs 3,000. The government has amended the provision with effect from 01-04-2018 and removed the exemption available to companies. In order to prevent abuse of the said proviso by shell companies or by companies holding benami properties, it is proposed to amend the provisions so as to provide that the said sub-clause shall not apply in respect of a company. The Budget announcement follows the recommendation of the task force on shell companies, which was set up in February, 2017. In the government’s fight against black money, shell companies have come to the fore as they are seen as a potential for money laundering. Till the end of December 2017, over 2.26 lakh companies were deregistered by the MCA for various non compliances and being inactive for long. Since 2017, the apex policy making body of the IT department — the Central Board of Direct Taxes (CBDT), has been sharing with the MCA specific information like PAN data of corporates, Income Tax returns (ITRs), audit reports and statement of financial transactions (SFT) received from banks.

[Source: The BusinessLine]