The Supreme Court on Tuesday dismissed appeals filed by JSW Steel Limited and its Deputy General Manager (Compliance) Pravin John Sequeira seeking to quash money laundering proceedings connected to the Janardhana Reddy mining scam.(JSW Steels Vs Deputy Director of Enforcement Directorate)
The Enforcement Directorate (ED) initiated the proceedings in connection with the illegal mining scam involving the Obulapuram Mining Company (OMC) of former Karnataka minister G Janardhana Reddy.
A Bench of Justices Dipankar Datta and Augustine George Masih upheld the Karnataka High Court’s June 13, 2022 order refusing to interfere with the Enforcement Directorate's (ED) complaint and the special court’s cognizance order.
The apex court emphasised that issues concerning the attachment of property and determination of “proceeds of crime” must first be adjudicated by the statutory Appellate Tribunal under the Prevention of Money Laundering Act, 2002 (PMLA).
“The appropriate course would be to permit the statutory process to run its route to reach its logical conclusion. Interference at this stage would prejudge issues that are squarely within the domain of the Appellate Tribunal,” the Court observed
In November 2009, JSW Steel entered into a contract with Obulapuram Mining Company (OMC), owned by former Karnataka minister G Janardhana Reddy, for the supply of 1.5 million tonnes of iron ore.
The company paid an advance of ₹130 crore. When OMC failed to deliver, JSW invoked arbitration.
In 2014, an arbitral tribunal directed OMC to refund over ₹35 crore with interest and the Bombay High Court upheld the award in 2019, giving JSW the status of a creditor.
Parallelly in 2011, following directions of the Supreme Court in the illegal mining matter, the CBI registered a case against Reddy, his wife Lakshmi Aruna and others.
JSW was initially named as accused in the case but was dropped from the CBI chargesheet through a supplementary report in 2013, effectively clearing it of criminal charges in that investigation.
Despite this, the ED registered an Enforcement Case Information Report (ECIR) in September 2012, alleging that ₹33.8 crore remained payable by JSW to OMC’s group company AMC.
The ED treated the same as “proceeds of crime” under PMLA and provisional attachment orders were issued in 2015 and 2016, freezing JSW’s bank accounts.
JSW challenged the attachment before the Karnataka High Court but the Court relegated the company to pursue remedies before the PMLA Appellate Tribunal.
In 2022, the ED filed a prosecution complaint and the special court took cognizance and issued summons to JSW.
The company then approached the Karnataka High Court again through writ petitions seeking quashing of the ECIR and summons. The High Court dismissed both petitions on June 13, 2022, holding that money laundering is a standalone, continuing offence.
JSW then moved the Supreme Court by way of the present petition against the ED proceedings.
The Court noted that while JSW was not named as an accused in the ECIR or the final CBI charge sheet, the ED’s case was based on alleged withdrawals from attached accounts in violation of attachment orders.
The Court rejected JSW’s plea that quashing of predicate offences nullified PMLA proceedings.
“The core issue is not whether the appellants’ entire banking operations are tainted, but whether the specific sum of ₹33.80 crore, representing unpaid consideration for iron ore supplied by AMC, can be treated as ‘proceeds of crime’ and whether its withdrawal post-attachment constitutes an offence under Section 3 of the PMLA," the Bench held.
The Court clarified that the allegations were confined to recovery of the quantified sum and did not extend to fastening wider criminal liability on JSW.
The appeals were dismissed with liberty to JSW and its officials to pursue their statutory remedies before the PMLA Appellate Tribunal.
The tribunal was directed to decide the matter uninfluenced by the Supreme Court’s observations.
“No case for quashing the cognizance order or interdicting proceedings is made out,” the Bench concluded.
JSW was represented by Senior Advocates Abhishek Manu Singhvi and Jaideep Gupta along with advocates Nandini Gore, Sonia Nigam, Ninad Laud, Akhil Abraham Roy, Mohammad Shahyan Khan, Akarsh Sharma, Zubin Dash and Swarnendu Das, instructed by Karanjawala & Co.
ED was represented by Solicitor General Tushar Mehta and Additional Solicitor General SV Raju and advocates Kanu Agrawal, Annam Venkatesh, Zoheb Hussain and Arvind Kumar Sharma.
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