PROCEEDS OF CRIME EXTENDS TO PROFITS FROM CRICKET BETTING EVEN THOUGH IT IS NOT A SCHEDULED OFFENCE UNDER PMLA

Proceeds of crime

Section 2(u) of the Prevention of Money Laundering Act, 2002 (‘Act’ for short) defines the expression ‘proceeds of crime’ as any property derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence or the value of any such property or where such property is taken or held outside the country, then the property equivalent in value held within the country or abroad. It also included property not only derived or obtained from the scheduled offence but also any property which may directly or indirectly be derived or obtained as a result of any criminal activity relatable to the scheduled offence.

Scheduled offence

Scheduled offences under the Act are the predicate offences that serve as the basis for a money laundering case, as listed in Parts A, B, and C of the Schedule. These include serious crimes under the Indian Penal Code and other acts (Part A), certain offences where the value exceeds Rs. 1 crore (Part B), and transnational crimes (Part C). Without a scheduled offence, there can be no money laundering charge.

Issue

The issue to be discussed in this article is as to whether the profits from cricket betting would amount to proceeds of crime even though it is not a scheduled offence under the Act with reference to decided case law.

Case law

In ‘Ghanshiyambhai B. Patel v. Adjudicating Authority and another’ and other 5 cases – 2025 (11) TMI 1711 - DELHI HIGH COURT, the present 6 petitions were filed challenging the validity of issuance of Provisional Attachment Order under Section 5(1) of the Act, original complaint filed under Section 5(5) of the Act and Section 8 of the Act.

The Directorate initiated actions against the petitioners in connection with large scale hawala transactions and illegal international cricket betting operations conducted through a U.K. based website ‘Betfair.com’. In the month of March 2015, the Directorate conducted a search operation under Section 37 of the Foreign Exchange Management Act, 1999 in the Farm house and the premises of the petitioners. In the search the ED recovered incriminating documents, digital records and cash allegedly linked to the operation of the hawala network facilitating international betting activities. It was revealed that certain SIM Cards had also been procured through forged signatures in bogus names as a part of the Cricket Betting Racket.

Soon after a FIR was filed under Sections 418,419,420,465,467,468,471 and 120-B of Indian Penal Code, 1860 against four individuals and against a partnership firm formed by them orally under the name and style ‘Maruti Ahmedabad’. Simultaneously the Directorate, Ahmedabad, initiated proceedings under Sections 3 and 4 of the Act on 26.03.2015 and registered Enforcement Case Information Report against the aforementioned individuals, in order to identify and locate proceeds of crime.

The Directorate on 22.05.2015 conducted a raid at the residential premises of the Petitioner. During the search certain incriminating documents and valuables including cash to the tune of Rs. 10 lacs were seized. For this a prosecution complaint was filed on 15.06.2015 before the Special Court, Ahmedabad, against the Petitioner. During the examination of the Petitioner, it was revealed that the Petitioner acted as a key conduit in the Cricket Betting Racket by distributing Master and Client Login IDs for the betting platform ‘Betfair.com’ within India. The Petitioner used to buy Super Master Login IDs from one Sukhminder Singh Sodhi in India, against a sum of approximately Rs. 2.4 crores (USD 30,000) per ID, which he paid for by remitting funds abroad through unauthorised channels.

The petitioner earned a commission of Rs. 30 to Rs. 100/- per US Dollar on the winning or losing position generated by users operating under the Master Login IDs/(Client) Sub-Login IDs. The petitioner did not comply with KYC norms and thus the entire transactions were anonymous, unregulated and unverifiable betting activities. Before filing prosecution against the petitioner, certain properties of the Petitioner were provisionally attached by way of a Provisional Attachment Order No. 08/2015 dated 12.06.2015. The said attachment order was challenged by the petitioner before the High Court. The High Court vide its order dated 28.10.2015, directed the Adjudicating Authority to grant an adjournment to the Petitioner in view of pendency of the proceedings thereof.

However, during the course of investigation it also came to the notice of the Directorate that, in the year 2013, Detection Crime Branch, Mumbai had filed a report under Section 173 of Code of Criminal Procedure, 1973 following a registration of an FIR, disclosing the active participation of several individuals in a similar Cricket Betting Racket. It was further observed that during the intervening period of 04.12.2014 to 19.03.2015, the partnership firm generated aggregate proceeds of crime amounting to approximately Rs.2,400 Crores through illegal betting activities, by placing and accepting bets on various matches played during the said period, involving bookies and punters located in India, Dubai, Pakistan and other nations across the world. The aforesaid proceeds were subsequently settled by the partnership firm with multiple bookies between 01.12.2014 and 16.03.2015, including Rs. 60 Crores being settled with the Petitioner.

The Directorate on 10.09.2015 issued a PAO under Section 5(1) of the Act, attaching moveable and immoveable properties valued at approximately Rs. 20 crores, as proceeds of crime arising out of illegal acts connected to the betting activities. Thereafter, the Directorate filed an original complaint before the Adjudicating Authority under Section 5(5) of Act seeking confirmation of the Provisional Attachment Order. A show cause notice dated 14.10.2015 was also issued under Section 8(1) of the Act. Against the same the petitioner filed a writ petition before the High Court (Single Bench). The Bench referred the matter to the Double Bench for adjudication.

The Directorate raised preliminary objections as to the maintainability of the petition before the High Court since an alternative remedy is available under the Act. The petitioner submitted the following before the High Court-

• The Petitioner was not identified as a suspect or witness in the FIR.
• The Directorate on the basis of mere assumption of certain transactions being settled by partnership firm in cash, proceeded to directly attach properties obtained by the Petitioner prior to the said raid, as proceeds of crime.
• Neither the Provisional Attachment Order nor the Show Cause Notice records a ‘reason to believe’ which is a sine qua non for initiating proceedings under Sections 5 and 8 of the Act.
•  A provisional attachment order can be validly issued only if the designated/authorised officer issuing the said attachment records on the basis of material in his possession, records a reason to believe, in writing, that the accused is in possession of proceeds of crime, which, if not attached, is likely to be concealed, transferred or otherwise dealt with in a manner which may result in frustration of proceedings under the Act.
• A reason to believe shall be communicated at every stage to the notice under Section 8(1) of Act. The noticee is entitled to access the materials on record basis which a reason to believe has been formed, failing which the order of provisional attachment order would be rendered illegal.
• There exists no proceeds of crime within the meaning of Section 2(1)(u) of Act since there exists no material on record to prove that the properties attached under Section 5(1) of the Act, have been derived as a result of criminal activity relating to a scheduled offence.
• The cricket betting is not a scheduled offence, as such failing to fall under the ambit of predicate offence.
• The show cause notice can only be issued against persons, whose properties have been attached in the provisional attachment order. No properties of the Petitioners have been attached. Hence, the show cause notice is invalid.

The Directorate submitted the following before the High Court-

• For the purpose of attachment, it is not important that the person needs to be an accused in predicate offence or under the offences defined in Act, since the proceeds of crime can be in hands of any person.
• The Petitioners have already received a show cause notice, in response thereto, they are at liberty to bring the said averment before the Adjudicating Authority for appropriate consideration.
• The writ petitions would, in any event, be rendered infructuous, since presently the Petitioners are not affected by any attachment.

The High Court considered the submissions of both the parties. The High Court considered the following issues to be decided in the present writ petition-

• Maintainability of the present petition;
• Whether the provisional attachment order and the show cause notice issued stand vitiated for proper lack of ‘reason to believe’?
• Whether the properties under attachment constitute proceeds of crime on the basis of the argument the cricket betting is not a scheduled offence under the Act?
• Whether the show cause notice issued to the petitioner is valid?

In respect of the first question on maintainability of the petition before the High Court, the High Court observed that Article 226(2) of the Constitution Of India empowers High Courts to exercise its writ jurisdiction in relation to matters in which a part of the cause of action arises within the respective territorial limits of the High Court. In the present case, the Cricket Betting Racket was undertaken in the state of Gujarat, on the basis of which the Provisional Attachment Order and its consequential proceedings were also initiated in Gujarat. The acts of the Petitioner relating to the procurement and distribution of Super Master Login IDs were executed and carried out within the territorial jurisdiction of this Court. This fact, in particular, establishes that a substantial part of the cause of action has arisen in Delhi, thereby justifying the invocation of the jurisdiction of this Court under Article 226. A writ court can exercise the powers vested in it, even if there exists an alternative efficacious remedy. The rule of availability of an efficacious alternate remedy, is not a technical bar rather, it is a rule of prudence and self-restraint, invoked with the intent of ensuring that the concerned parties resort to the rights and remedies created by or within the relevant statutory framework before invoking the extraordinary and discretionary remedy of Article 226.

The High Court next moved to the second question. The High Court observed that-

• Under Section 8(1) of the PMLA, the Adjudicating Authority is empowered to issue a notice to the concerned person(s) on the basis of ‘reason to believe’ calling them to submit response(s) and participate in the proceedings before confirmation of the attachment.
• Section 8(2) further mandates upon the Adjudicating Authority to consider the reply and other material placed before it and affording hearing opportunity to take a final decision.
• The affected party has been given a fair and reasonable opportunity to present its case and assist the authority in the adjudicatory process.
• Section 26 provides a remedy of appeal before the Appellate Authority against the order of the Adjudicating Authority.
• Section 42 of the Act further enables a statutory appeal before the competent High Court.

It has been revealed that a turnover of Rs. 2469,99,08,750/- in form of various bets placed by a large number of bookies/punters spread not within the geographical boundaries of India but also in Dubai, Pakistan etc., on different matches played between 04.12.2014 till 19.03.2015 was generated by its partnership firm. Whereas, out of the aforementioned settlement amount of Rs. 2469,99,08,750, Proceeds of Crime to the tune of to Rs. 60, 71,75,090/- from 01.01.2014 till 16.03.2015 has been settled between Shri Mukesh Kumar and the partnership firm. The High Court was of the view that the D/AO possessed sufficient and cogent material to form the requisite reason to believe and the formation of such belief under Section 5(1) of the Act was not mechanical or predicated on mere suspicion. The provisional attachment order also indicates the existence of a clear nexus between the material collected and the inference drawn regarding the involvement of the Petitioner in process of money-laundering. The High Court found no infirmity in the issuance of provisional attachment order and the show cause notice.

In regard to the third question the High Court observed that Section 2(1)(u) of PMLA not only covers properties directly obtained from a scheduled offence but also includes any property derived indirectly therefrom. It was observed that the usage of phrase ‘directly or indirectly’ reflects the wider scope of the provision, covering subsequent layers, transformations, or transactions meant to give illicit gains a semblance of legitimacy. even if a downstream activity, such as conducting betting, is not a scheduled offence, profits generated from such activity remain traceable to the original tainted property, especially when the said downstream activity is a final manifestation of a chain of criminality, intricately interwoven with multiple preceding criminal acts, any profit derived therefrom clearly constituting ‘proceeds of crime’ within the contours of the Act. In the present case, the act of the Petitioner to procure and distribute these IDs, without any KYC verification or lawful documentation amounts to forgery, cheating, identity fraud and criminal conspiracy, all of which constitute as a scheduled offence. Moreover, the conduct of the Petitioner was not merely incidental; rather, it was a deliberate act undertaken in furtherance of a larger criminal conspiracy aimed at facilitating the running of an illegal betting racket. Therefore, any benefit indirectly derived by the usage of Super Master Login IDs, would constitute proceeds of crime.

 In respect of the issue of validity of the show cause notice, the High Court considered the two issues to be decided as below-

• Whether the show cause notice issued by Adjudicating Authority is valid in view of the Adjudicating Authority allegedly acting coram non judice under Section 6 of the Act?
• Whether a show cause notice can be issued even in the absence of prior attachment of properties by the Directorate.

The quasi-judicial functions exercised by Adjudicating Authority must not be conflated with the attachment order passed under Section 5(1) of the Act, which is a precautionary and emergent measure undertaken by the Directorate to prevent dissipation or concealment of proceeds of crime. While the show cause notice initiates the adjudicatory process, attachment under Section 5(1) of the Act is provisional in nature and is aimed at safeguarding the assets pending determination, reflecting the deliberate legislative distinction between protective measures and the procedural onset of adjudication. The absence of attachment under Section 5 of the Act cannot invalidate the show cause notice, since it is not a jurisdictional pre- requisite, absence of which will disable the Adjudicating Authority to issue such notice in contravention of the provisions of the Act.

In view of the above the High Court dismissed the writ petition.