Cheating and Forgery Taint Even Legal Funds: No Safe Haven in Law for Laundered Money: Bombay High Court

“Gambling May Not Be Scheduled, But Forgery Makes the Money Dirty” – In a decisive interpretation of the Prevention of Money Laundering Act, 2002, the Bombay High Court refused bail to Khilji Mohsinahmed Mustakali, accused of laundering over ₹112 crore routed from illegal gambling operations through shell companies, forged identities and false documents.

Justice Shyam C. Chandak held that even if the original source of the funds—gambling—is not a scheduled offence, the subsequent acts of cheating, forgery, and misrepresentation make the entire transaction “tainted”, thus attracting the PMLA.

The Court remarked, “Although gambling itself is not a scheduled offence, the core of the criminal scheme in this case was cheating and forgery — forging identities, forging blank cheques, forging shell-company accounts — all these are listed/scheduled offences.”

“Forgery of Cheques, False Companies and Cheated Identities – These Are Not Technicalities, But Scheduled Offences Enabling Laundering”

Rejecting the argument that the applicant merely dealt with genuine documents, the Court emphasized the deceptive manner in which innocent individuals were induced to part with KYC documents under the false pretext of employment.

The Court observed, “If these individuals were not deceived and not made to give their documents of identity, with their informed consent, the original money allegedly generated by way of illegal business and/or online gambling could not have been credited in the bank accounts of the shell companies nor its withdrawal was possible.”

The applicant’s actions, including control over bank accounts, use of pre-signed cheques, and large-scale cash withdrawals, were found to be “integral to the design of the offence”, making him a direct participant in the laundering process.

Delivering a blow to the common defence raised in PMLA cases involving non-scheduled predicate offences, the Bombay High Court has clarified that it is not the source alone, but the laundering process that determines culpability under PMLA.

Justice Chandak wrote, “The association of the money gained by way of illegal business and/or online gambling with the bank accounts of the shell companies opened by cheating... was integral part of the entire scheme of this crime.”

In doing so, the Court has underlined that criminal activity “relatable to” a scheduled offence—such as cheating under Section 318(4) BNS and forgery under Sections 338 and 340(2) BNS—can render even otherwise legal property into ‘proceeds of crime’.

The Nexus of Gambling, Shell Companies, and False Promises

The case began with an FIR filed at Malegaon Chawani Police Station, Nashik, where innocent individuals were tricked into handing over their identity documents in exchange for job promises. These were then used to open bank accounts and shell entities through which over ₹112 crore was moved.

One such individual, Jayesh Lotan Misal, stated that his documents were used to open companies like M/s Choice Marketing and M/s Sunrise Traders. The Enforcement Directorate found 14 bank accounts had been opened using similar methods and received funds from over 200 firms, followed by high-volume cash withdrawals.

The Court noted that the applicant was “not a mere bystander”, and actively engaged in withdrawals, manipulation of accounts, and acted under the instructions of Mehmood Bhagad @ Challenger King, the alleged mastermind of the gambling racket.

Cheating and Forgery Under BNS Are Not Superficial Allegations

Justice Chandak made it clear that the acts committed by the applicant were not minor or technical infractions but core criminal conduct necessary for laundering.

The Court held, “This is a clear case of cheating the individuals... making a false valuable security (cheque) and using it as a genuine... ultimately, making a wrongful gain by the applicant for himself and the main accused.”

Rejecting the defence that genuine documents were used, the Court invoked the Supreme Court’s ruling in Mohammed Ibrahim v. State of Bihar, clarifying that fraudulently using someone’s identity and obtaining consent through deception amounts to forgery.

The applicant's argument that no direct property was gained failed to convince the Court. It was observed that bank accounts are “intangible property”, and the accused had wrongfully taken control of such property through deception.

The Court reiterated, “This was a clear wrongful loss of documents and right to operate the bank account by the individuals and wrongful gain of property by the accused persons.”

Details of the Judgment: “Property Need Not Be Tangible – Bank Accounts Represent Real Rights and Real Loss”

Citing State of Maharashtra v. Tapas D. Neogy, the Court held that a bank account is a form of property, and wrongful control over it, obtained through deception, qualifies as wrongful gain under law.

The forged cheques, issued in blank by victims and later filled in by the accused, were central to the crime. The Court said:

“When the accused concerned wrote his name as ‘payee’ in the blank signed cheques to encash it, he did it falsely and without any authority, to derive or obtain the money from the bank account concerned.”

This, according to the Court, squarely fell under the definition of making and using a forged valuable security—a scheduled offence under PMLA.

On the argument that no financial loss was caused to the account holders, the Court was clear:

“Section 318 BNS is not limited to delivery of such victim’s property. On the contrary, it is attracted against delivery of any property to any person by the person who was deceived and fraudulently or dishonestly induced to do so.”

“No Bail When Laundering Involves Deliberate Disguise of Origin” – Twin Conditions Under PMLA Not Met

Applying the twin conditions under Section 45 of PMLA, the Court ruled that the applicant failed to show that he was not guilty of the offence, and that he would not commit a similar offence while on bail.

On this, Justice Chandak said:

“Looking at the nature of the offence, there is strong possibility of the applicant causing disappearance of the evidence of this offence.”

The Court rejected the argument that the applicant’s confession under Section 50 PMLA was inadmissible, noting that statements were corroborated by witness depositions, WhatsApp chats, and transactional records, thereby forming a “strong prima facie case”.

Legal Sophistry Cannot Bypass the Substance of PMLA

In summing up the decision, the Bombay High Court made a crucial observation that attempts to technically escape the PMLA by focusing on the origin of funds rather than the laundering process must fail.

The Court declared, “If this conclusion is not drawn... then any money accumulated so illegally will easily become a legally derived or obtained money and escape the provisions of the PMLA which is incorporated and implemented to protect the economy of the country.”

By tying fraudulent methods used in financial structuring to scheduled offences, the Court has reinforced that money laundering is not merely about origin, but about the entire criminal machinery that attempts to disguise that origin.

Date of Decision: 5 December 2025