Allocation of coal block in itself can't be considered as proceeds of crime under PMLA: Delhi High Court

The Delhi High Court has held that allocation of coal blocks per se cannot be viewed or recognised as proceeds of crime under the Prevention of Money Laundering Act (PMLA) [Prakash Industries Ltd and Anr v Directorate of Enforcement]. .Pertinently, Justice Yashwant Varma held that just because money laundering has been described as a stand-alone offence under the Prevention of Money Laundering Act (PMLA), does not mean that proceedings can be initiated or sustained even after a court has discharged the accused or held that no predicate offence was committed..In a nutshell.- Allocation of coal blocks per se not proceeds of crime under PMLA;- PMLA proceedings cannot sustain if competent court has held that predicate offence was not committed;- Only the activities relating to money laundering that can form the subject matter of PMLA proceedings;- Acts of money laundering completed before July 1, 2005 (when PMLA came into force) can't be punished under the Act;- However, PMLA would be attracted if money laundering committed after July 2005, even if the predicate offence was before that date..On coal block allocationThe Court held that only the illegal gains obtained by utilisation of allocation and concealment and conversion of those gains into assets or properties can be understood as an act amounting to money laundering.“The allocation at best represents a right conferred by the Union enabling the holder thereof to apply to the concerned State Government for grant of a mining lease... It would be the subsequent and consequential utilisation of that allocation, the working of the lease that may be granted, the generation of revenues from such operations and the investment of those wrongfully obtained monetary gains that can possibly give rise to an allegation of money laundering,” the Court said..On predicate offenceJustice Varma said that the allegation of money laundering is premised and dependent on the commission of a criminal offence and unless proceeds are found to have been derived from criminal activity, the question of money laundering would not arise.“Since the offence of money laundering is essentially aimed at depriving persons of the fruits and benefits that may have been derived or obtained from criminal activity, the charge is inextricably linked to criminal activity. However, once it is found that a criminal offence does not stand evidenced, the question of any property being derived or obtained therefrom or its confiscation or attachment would not arise at all and in any case, proceedings if initiated under the Act would be wholly without jurisdiction or authority,” the Court has held..On scope of money launderingThe judgment also noted that not every activity falls within the ambit of Section 3 of PMLA (definition of money laundering) and while criminal activity may represent or evidence the commission of a predicate offence under the Indian Penal Code, it is only the activities relating to money laundering that can form the subject matter of proceedings under the Act.“Section 3 creates an indelible link between property derived or obtained and criminal activity relating to a scheduled offence. It is only when it is found that a person has derived property as a result of criminal activity that the offence of money laundering can be said to have been committed. Absent the element of criminal activity, the provisions of the Act itself would not be attracted,” it said..On acts before July 2005Justice Varma further said that the acts of money laundering completed before July 1, 2005 (when PMLA came into force) can't be punished under the Act. However, its rigours would be attracted against acts of laundering committed after July 2005, even if the predicate offence was committed was before this date. “The Court exposits and reiterates the legal position to be that it is the date of the commission of the offense of money laundering and not the date of commission of a scheduled offense which is relevant and determinative. The date of inclusion of a crime as a scheduled offense would also not be determinative and the issue would have to be decided bearing in mind whether an allegation of money laundering stood committed after the Act had come into force.”.Background.The High Court was dealing with two petitions filed by Prakash Industries Limited (PIL) and its associate companies. PIL is stated to be involved in the business of mining and had challenged a provisional order of attachment dated December 1, 2021, issued by the Enforcement Directorate (ED).This order was then placed for confirmation before the Adjudicating Authority (AA), which issued notices to the companies. These proceedings were challenged before the High Court.PIL informed the Court that it was allocated the Chotia coal block in the Hasdeo-Arand and Panchvahini coalfields in the State of Chhattisgarh in September 2003. On April 7, 2010 an first information report (FIR) came to be registered alleging that PIL had made misrepresentations and submitted false and incorrect information to obtain allotment of the coal block. It was also alleged that the company diverted nearly 2.27 lakh tons of coal and earned illegal profits of nearly ₹22.7 crore.Though a chargesheet was submitted in connection with the FIR, both were quashed by the Delhi High Court in September 2014. A Special Leave Petition (SLP) was filed against the High Courts order, which is still pending before the apex court.A second FIR was registered against the company by CBI in December 2016 following the Supreme Court’s decision in Manohar Lal Sharma. The Supreme Court, through its order, had cancelled the allocation of the coal block in PIL’s favour.A second chargesheet was filed by CBI against the firm alleging offences under Sections 120B (criminal conspiracy) and 420 (cheating). It stated that PIL had fraudulently and dishonestly obtained the coal allocation. However, this chargesheet restricted itself to events that occurred up to September 4, 2003 (the day when coal block was allocated to the firm). Proceedings in this chargesheet have been stayed, the court was told. .Court's findings.The High Court noted that while the second chargesheet restricts itself to the date up to when the coal block was allocated, ED’s provisional order of attachment takes cognisance of the properties that the firm acquired before, as well as after that date.Justice Varma held that the allocation of coal cannot be viewed as amounting to proceeds of crime per se. Under the PMLA, it is only the gains that may have been obtained by the utilisation of allocation which could be viewed as proceeds of crime, the judge said..He added that ED’s proceedings rest on the second chargesheet which restricts itself to the date of the allocation of coal blocks. Therefore, the proceedings under the PMLA cannot travel beyond the gamut of the chargesheet and allegations of money laundering would have to be fenced up to the date of the allocation of the block.“This coupled with the fact that the allocation itself would not represent proceeds of crime leads the Court to the inescapable conclusion that the impugned proceedings are rendered patently illegal.”The Court held that ED’s attachment order is unsustainable and directed the proceedings arising out of these orders as well as show cause notice and all proceedings related to it to be quashed..Senior Advocate Kapil Sibal, along with Advocates Ankur Chawla, Vijay Aggarwal, Gurpreet Singh, CB Bansal, Aamir Khan, Aparajita Jamwal and Bakul Jain appeared for the petitioners. Additional Solicitor General SV Raju, along with Advocates Zoheb Hossain, Anshuman Singh, Ankit Bhatia and Harsh Paul Singh appeared for the ED. .[Read Judgment]

Allocation of coal block in itself can't be considered as proceeds of crime under PMLA: Delhi High Court

Prashant Jha

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