ED cannot investigate offence other than money laundering, cannot assume that predicate offence has been committed: Delhi High Court

The Delhi High Court on Tuesday held that the Enforcement Directorate (ED) does not have the powers to investigate any offence other than money laundering and the agency cannot assume by itself that a predicate offence has been committed [M/S Prakash Industries Limited v Union of India and Anr]..Single-judge Justice Yashwant Varma held that the primary function to investigate and try offences listed as scheduled offences in the PMLA vests in authorities constituted under those independent statutes.“What needs to be emphasised is that the PMLA empowers the ED to investigate Section 3 offences only… Its power to investigate and enquire stands confined to the offence of money laundering as defined in that Section. As would be evident from a perusal of the Schedule, it enlists offenses defined and created under various statutes which independently contemplate investigation and trial. The primary function to investigate and try such offenses remains and vests in authorities constituted under those independent statutes. ED cannot possibly arrogate unto itself the power to investigate or enquire into the alleged commission of those offenses," the Court said.In any case, it cannot and on its own motion proceed on the surmise that a particular set of facts evidence the commission of a scheduled offence and based on that opinion initiate action under the PMLA, the Court underscored.It further said that if, in the course of its enquiry and investigation, ED comes to the conclusion that the material in its possession shows the commission of an offence created under any other enactment, it would be obliged to furnish requisite information to the concerned agency for necessary action..The Court made the observations while allowing the petitions filed by firms named Prakash Industries Limited and Prakash Therma Power Limited challenging the Provisional Attachment Orders (PAO) issued by the ED on November 29, 2018.The ED’s proceedings emanated from the allocation of the Fatehpur Coal Block in Chhattisgarh. It was stated that the petitioner and its joint venture partner misrepresented their net worth to procure the coal block.An FIR was registered against the firm under provision of the Indian Penal Code (IPC) and the Prevention of Corruption (PC) Act. Based on the FIR, the ED registered an Enforcement Case Information Report (ECIR) alleging that the criminal offence had led to generation of proceeds of crime.However, the allocation was cancelled after the Supreme Court’s judgement in Manohar Lal Sharma v The Principal Secretary & Ors case which was delivered on September 24, 2014.While further investigation was continuing both in respect of the FIR as well as the ECIR, on July 17, 2018 a complaint came to be lodged by ED asserting it to be one under Section 45 of the PMLA. The investigation of the ECIR and the complaint are still going on.The Court was told that apart from the allegations contained in the CBI FIR, the ECIR as well as the complaint, the PAO also alludes to the petitioner having allegedly conspired to manipulate its share prices by issuance of 62,50,000 equity shares on a preferential basis..In the judgment running into 111 pages, the bench not only dealt with the ED’s powers and scope of various sections of the PMLA but also the objection that only the special court constituted as per the orders of the apex court can deal with all the cases related to coal block allocation scam.Below are the Court’s finding in brief:.High Court can deal with cases related to coal block allocation.A preliminary objection was raised by the ED’s counsel that as per Supreme Court’s order of July 25, 2014 in the Manohar Lal Sharma vs The Principal Secretary & Ors, any prayer for stay or any order impeding the progress of investigation relating to coal block allocations would be liable to be placed before the Special Court only and that no other court could entertain the same.Justice Varma rejected the argument and held that the apex court’s directions are confined only to criminal proceedings related to coal block allocation and do not extend to cases challenging the PAOs made under PMLA.The Court said that the Supreme Court's directions cannot be construed as denuding the High Court of the jurisdiction to entertain a challenge relating to a PAO and the exercise of power by the ED under Section 5 of the PMLA.The judge further said that if ED’s arguments are accepted, it would essentially amount to recognizing a power inhering in the Special Judge to not only don the robes of the Adjudicating Authority under Section 8 but to also deprive the appellate forums of the jurisdiction to decide appeals against the orders that may ultimately come to be passed under Section 8 of the PMLA. .The Court noted that in the present case, the allocation of the preferential shares and the proceeds garnered from the same was what constituted the substratum of the PAO.However, no report or complaint in that regard was registered and the allegation was also never investigated either, the bench underscored.It observed that the PAO came to be drawn ten years after the allocation of preferential shares and the chargesheet submitted by the CBI does not take cognizance of the said allegation as amounting to the commission of an offence under IPC.“In fact, and till date even though more than fourteen years have elapsed, ED has failed to furnish any information to the competent agency to try, investigate or examine aspects pertaining to the preferential allotment of shares in order to ascertain whether they evidence the commission of a scheduled offence,” Justice Varma said.He concluded,“It is thus established beyond an iota of doubt that the PAO rests on a mere presumption of the ED that a scheduled offense was committed by the petitioner while allotting preferential shares.”.The Court said that since the PMLA does not empower the ED to either proceed on the assumption that a scheduled offence stands committed or extend to it power to investigate or charge a person, the PAO deserves to be quashed.The Court, therefore, quashed the PAO as well as the original complaint..Advocates Ankur Chawla, Gurpreet Singh, CB Bansal, Amir Khan, Shivam Tandon and Aamir Khan and Prerna Mahajan appeared for the petitioners.Advocates Zoheb Hossain and Vivek Gurnani 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

ED cannot investigate offence other than money laundering, cannot assume that predicate offence has been committed: Delhi High Court

Prashant Jha

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