Madras High Court denies bail to NRI company director accused of money laundering and supplying substandard coal to power packs

Madras High Court has refused to grant bail to Ahmed AR Buhari, director and promoter of M/s Coastal Energen Private Limited (CEPL), charged with the offense under Section 3 of the the prevention of money laundering.

Judge G. Jayachandran observed that the petitioner allegedly supplied substandard imported coal from Indonesia to public sector enterprises (PSUs), channeled the supply through his shell company in Dubai, and diverted the overinflated and overpriced money to his offshore entities in the United Arab Emirates, Great Britain Virgin Islands (BVI) and Mauritius. According to defendant ED, the money thus laundered is brought back to India as an equity investment in Coastal Energy Private Limited which he owns.

The court also noted the prosecution’s argument that the accused failed to cooperate with the investigation. In fact, he withholds relevant information for further investigation. The court therefore noted in its order dismissing the bond:

“IIn the opinion of this Court, this petitioner that Ihis non-resident Indian widely connected with other parts of the world and reluctant to cooperate with the investigation in its truest sense is not entitled to bail. The ramification of the alleged crime amounts to several hundred crores. Several people inside and outside India are linked to the crime. Documents related to Shell companies started by him in other countries should be collected…His appearance before the Investigating Officer for investigation as and when it suits him does not indicate that his presence can be assured, if he once decides to leave the country forever.

On the argument of the petitioner’s lead counsel, P. Chidambaram, that the arrest was not necessary, the court held that section 45(1) of the amended PMLA should be applied when “bail application is considered for offenses involving ‘proceeds of crime’ in excess of 1 crore rupees”. Section 45(1) of the Act imposes an additional condition for the granting of bail in addition to the condition contained in the Code of Criminal Procedure.

The court also noted that the principle that “bail is the rule and jail the exception” is not fully applicable in special legislations like PMLA, NDPS etc. where “prison becomes the rule and bail becomes the exception” depending on the seriousness of the offenses committed.

“…Whether or not such a classification is reasonable is primarily the issue currently pending before the Apex Court. Until the verdict is delivered, as the Divisional Bench of this Court observed in N.Umashankar & others -vs- The Deputy Director, Enforcement Directorate, Government of India, Chennai (2022)….the constitutional validity of section 45(1) of the PMLA, 2002 found in the statute must be held to be valid”clarified the court.

The court accepted the Additional Solicitor General’s assertion that the petitioner deliberately evaded the questions posed by the investigative body to provide the bank account statements of the offshore companies involved in this transaction, the original invoices presented by the miners of Indonesian Coal Companies to its entities based in Dubai, Books of Accounts to its foreign entities located in Mauritius and the British Virgin Islands (BVI).

These documents, crucial to determining whether money was laundered in the manner prima facie indicated by the investigation, must be turned over to the agency, the court noted.

Arguments raised

The petitioner argued that for an arrest under the PMLA, an arrest under the PMLA, the authorized officer must prima facie ascertain that the accused is guilty of the offense under the PMLA. To grant bail, the court must find that the defendant is not guilty of the said offense under the PMLA. The crux of the argument was that the predicate offense is not established and no final report has been filed thus far, therefore, At first glance satisfaction guilt does not arise. The petitioner also added that the constitutional validity of section 45 of the PMLA is currently being challenged in the Supreme Court and that the rigors thereof should not be applied to the granting of bail. The triple test of section 437 Cr. PC should only be enforced, they argued.

Refuting the claimant’s assertion that there must be a conclusion of proceedings under the “predicate offence” in order to act on the claimant, ASG submitted that the initiation of proceedings under the is more than enough and even the outcome of the procedure is irrelevant. He added that there was nothing to prevent bringing an action under the PMLA, 2002 simultaneously and continuing it independently of the orders made in respect of the intended offence.

In court, the ASG argued that the petitioner’s cooperation was “partial and selective”. After categorically refusing to provide documents relating to offshore accounts and shell companies, the petitioner exercised his right to remain silent, ASG added. However, that right is subject to “adverse inference” and Section 63 of the law penalizes anyone withholding information or providing false information, ASG argued.

Other observations of the Court

After considering the competing findings, the court noted in the order that:

“…In addition, after declaring silence, the investigative body needs time to collect the required documents, by means other than the petitioner himself has indicated in his petition, (i.e. i.e. a Letter of Request (LOR) under Section 57 of the PMLA, 2002 or Section 166-A of the Cr.PC, may be relied upon. It is at the discretion and prerogative of the investigative body to choose the mode and they do not need any advice from either the Court or the accused…”

The court added that the confinement of the promoter, Mr Buhari, is unavoidable for the collection of these documents, because there is a real fear that he could “conceal” these relevant documents if released on bail.

context

It is relevant to note that the Tax Intelligence Department (DRI) was the first agency to take note of the overvaluation of coal imported from Indonesian mines via Dubai to India in 2017. Show cause notice was given to Mr Buhari for redetermine the import value of the coal pursuant to Section 14 of the Customs Act and confiscate the coal pursuant to Section 112(iii) of the Customs Act. Sections 112(a) and (b) r/w 112(iii) also impose a penalty for the same.

A response was given by Mr. Buhari and it was not processed by the Directorate of Tax Intelligence (DRI) according to the petitioner. Subsequently, CBI registered an FIR in 2018 for offenses under Sections 120B r/w 420 IPC and Sections 13(2) r/w Section 13(1)(d) Prevention Act 1988 corruption. According to the petitioner, he also appeared before the CBI and provided all relevant documents. However, CBI has not filed a final report on this.

Subsequently, the Enforcement Directorate registered the ECIR for the same transaction in 2018. The alleged proceeds of crime amounting to Rs.557.25 Crores at Mutiara Thermal Power Plant, Tuticorin in possession of M/s .Coastal Energen Pvt. Ltd has been provisionally attached to PAO No. 01/2020 in CB No. 1286 of 2020 by the Procuring Authority (PMLA) of New Delhi.

According to the petitioner, since there was no confirmation of the provisional seizure within 180 days, the provisional seizure order lapsed and the Delhi High Court ordered a standstill with regard to the movable and immovable property subject to the seizure. All proceedings before the trial authority were therefore also suspended. Subsequently, the investigation by the Enforcement Directorate was ongoing.

The Look Out Circular (LOC) issued in 2020 by the ED has been suspended periodically by the Madras High Court after the petitioner filed written petitions for trips abroad till 2022. This was until that the petitioner requested a periodic postponement of appearance before the agency and ultimately refused to part with the documents on March 3, 2022.

Case title: Sri. Ahmed ARBuhari, S/o.Shri.Abdul Rahman Buhary Seyed c. Deputy Director, Enforcement Branch

Case no: Original Criminal Petition No. 6205 of 2022

Citation: 2022 LiveLaw (Mad) 125

Click here to read/download the order