The Gauhati High Court has refused to quash proceedings initiated by the Directorate of Enforcement (ED) holding that a person or company need not be named as an accused in the predicate (scheduled) offence to be prosecuted under the Prevention of Money Laundering Act, 2002 (PMLA), if there is prima facie material indicating involvement in laundering the proceeds of crime.
The bench of Justice Yarenjungla Longkumer dismissed the company’s petition challenging the Enforcement Case Information Report (ECIR), provisional attachment order, prosecution complaint, and summoning order arising out of the alleged HPZ Token cryptocurrency investment fraud, observing that the material collected by the ED disclosed a prima facie case warranting trial.
The petitioner company claimed to be engaged in the business of providing reseller services for international gift cards and facilitating Indian customers in purchasing gift cards and recharging international e-wallets.
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The controversy arose after multiple FIRs were registered against the HPZ Token mobile application, which allegedly induced investors across India to invest in cryptocurrency mining schemes by promising unusually high returns. According to the complaints, investors were assured that their funds would be invested in Bitcoin and other cryptocurrency mining machines, but the application eventually stopped functioning and users were unable to withdraw their investments.
Since offences under Sections 420 and 120B of the IPC constitute scheduled offences under the PMLA, the Enforcement Directorate registered an ECIR and commenced investigation into the alleged laundering of the proceeds generated from the fraud.
During the investigation, the ED alleged that the petitioner company had used the AstroPay platform for activities connected with betting, gambling and cryptocurrency transactions while operating through the PayU payment gateway.
The agency further alleged that the company had misused PayU’s payment gateway credentials by routing transaction traffic originating from betting and adult-content websites, including foreign traffic, despite its declared business activities not corresponding with such transactions. It also alleged that the company functioned as one of several shell entities used to layer and transfer proceeds of crime before converting them into cryptocurrencies and routing them to foreign wallets.
Based on these findings, the ED provisionally attached the company’s assets, filed a prosecution complaint under the PMLA and secured issuance of summons from the Special PMLA Court.
The company argued that the entire PMLA proceedings were without jurisdiction because it was not an accused in any scheduled offence, nor had the ED established any money trail connecting it with the proceeds of crime generated from the alleged HPZ Token fraud.
It further contended that no scheduled offence existed against the company; there was no evidence linking it with the proceeds of crime; the prosecution relied merely upon statements of officials from BuyUcoin and PayU without establishing any criminal nexus; at best, the allegations suggested possible violations of contractual obligations or other regulatory laws such as the GST Act or Companies Act; the Special Court had mechanically issued summons without independently examining nearly 12,000 pages of material placed before it.
The Enforcement Directorate argued that money laundering is an independent offence and that a person need not be an accused in the scheduled offence to be prosecuted under Section 3 of the PMLA.
According to the agency, investigation revealed that the petitioner company was one of numerous shell companies through which proceeds of crime were layered and converted into cryptocurrency before being transferred abroad. The ED also relied upon statements of the company’s director, who allegedly admitted that he had little knowledge about the company’s actual operations and merely signed documents forwarded to him electronically.
The Court examined the scheme of the PMLA and reiterated that while the ED does not investigate the scheduled offence itself, it is empowered to investigate whether proceeds generated from such offence have been concealed, transferred, layered or projected as untainted property.
It observed that where proceeds of crime are routed through cryptocurrency exchanges, shell companies or digital wallets, the ED is fully competent to investigate those laundering activities even though the underlying cheating offence remains under investigation by another agency.
The Court held that money laundering is a distinct and independent offence; the existence of a scheduled offence is necessary; any person knowingly participating in activities connected with proceeds of crime may be prosecuted under the PMLA, irrespective of whether such person is named in the predicate offence.
The Court also relied upon the Supreme Court’s decision in Pavana Dibbur, which clarified that even a person not arrayed as an accused in the scheduled offence can commit the offence of money laundering if he knowingly assists in handling or concealing proceeds of crime.
After examining the prosecution complaint, the High Court found prima facie material suggesting that the proceeds of crime generated through the HPZ Token fraud had allegedly been layered through numerous shell companies; the petitioner company was alleged to be one such entity facilitating the movement of illicit funds; directors of the company were unable to explain its business operations or significant financial transactions; substantial unexplained funds had allegedly been routed through its accounts.
The Court clarified that at the stage of considering a petition for quashing, it could not conduct a mini-trial or evaluate the reliability of evidence. The only question was whether the prosecution complaint disclosed the essential ingredients of the offence, which, according to the Court, it did.
The High Court also declined to interfere with the Special Court’s summoning order, holding that such an order is revisable under the Bharatiya Nagarik Suraksha Sanhita (BNSS) and cannot ordinarily be challenged by invoking the High Court’s inherent jurisdiction under Section 528 BNSS.
Similarly, the Court held that the challenge to the Adjudicating Authority’s attachment order was not maintainable because the PMLA itself provides a complete appellate mechanism before the Appellate Tribunal and thereafter before the High Court on questions of law.
Holding that the petitioner had failed to establish any exceptional circumstance warranting interference, the Gauhati High Court dismissed the petition in its entirety.
The Court concluded that there was prima facie evidence indicating the petitioner’s involvement in activities connected with the proceeds of crime, and therefore the ED was justified in proceeding under the PMLA even though the company was not named in the original scheduled offence. The criminal prosecution and attachment proceedings were accordingly allowed to continue.
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