Delhi High Court: Yashwant Varma J. categorically held that an allocation of coal cannot possibly be viewed as amounting to ‘proceeds of crime’ per se but the gains that may be obtained from criminal activity which are concealed or projected to be untainted that can form the subject matter of the offense under the Prevention of Money Laundering Act, 2002 (‘PMLA’/ ‘Act’).
Prakash Industries Limited (PIL -petitioners) installed a Sponge Iron Plant at Chotia in the State of Chhattisgarh which was apprised by the Ministry of Coal and permitted it to explore the Hasdeo-Arand coal block for captive development. Pursuant to this, the application for allocation of the Chotia coal block was allocated to PIL. On 07-04-2010, the first FIR was registered alleging misrepresentation with respect to its captive activity, submission of false and incorrect information in order to obtain allotment of the coal block and diversion of coal extracted from that block in the open market forming subject matter of the first charge sheet. Further allegations are based on the revenues generated as a result of the said criminal activity; various properties were purchased by PIL acting through its related and sister concerns. However, the impugned proceedings rest upon the allegations which form part of the second charge sheet. The second charge sheet restricts itself to events which occurred up to 4-09-2003 only, the provisional order of attachment takes cognizance of acquisition of properties which occurred prior to as well as after the allocation of the coal block itself. It is in the aforesaid backdrop that petitioners have laid a challenge to the initiation of proceedings by the instant petition.
As per the objective of PMLA, the entire edifice of a charge of money laundering is raised on an allegation of a predicate offense having been committed, proceeds of crime generated from such activity and a projection of the tainted property as having been legitimately acquired. However, once it is found on merits that the accused had not indulged in any criminal activity, the property cannot legally be treated as proceeds of crime or be viewed as property derived or obtained from criminal activity.
Placing reliance on Rajiv Chanana v. Dy. Director, Directorate of Enforcement, 2014 SCC OnLine Del 4889 and Directorate of Enforcement v. Gagandeep Singh, 2022 SCC OnLine Del 514, the Court observed that the expression ‘proceeds of crime’ creates an inextricable link between criminal activity and the acquisition of property and assets as a result thereof. If the charge of criminal activity ceases to exist in law, a charge of money laundering would neither sustain nor survive. Thus, once it is found by a competent court, authority or tribunal that a predicate offence is either not evidenced or on facts it is held that no offence at all was committed, proceedings under the Act would necessarily have to fall or be brought to a close.
Reliance was placed on Manohar Lal Sharma v. Principal Secretary, (2014) 9 SCC 614 wherein the Supreme Court has extensively reviewed the system of coal allocation of coal blocks by the Union Government and on perusal of the same it is manifest that the allocation of a coal block cannot stricto sensu be construed either as property or conferment of a right in property.
Thus, the allocation at best represents a right conferred by the Union enabling the holder thereof to apply to the concerned State Government for a grant of a mining lease. The allocation cannot per se be recognised as representing ‘proceeds of crime’. It would be the subsequent and consequential utilization 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 falling within the net of Section 2(1)(u) of Act.
Issue 2: Whether Article 20 (1) has been violated?
The allocation of the coal block was made in favour of the petitioners on 04-09-2003 and at that time the PML Act was not in force and came to be promulgated much later on 01-07-2005. Further, Sections 420 and 120-B Penal Code, 1860 i.e., IPC came to be included as scheduled offenses only on 01-05-2009. Thus, Mr. Sibal contended that since at the time of allocation neither the Act was in existence nor Sections 420 or 120-B IPC included as scheduled offenses, the impugned action must be held to be in violation of Article 20(1) of the Constitution.
Placing reliance on Mahanivesh Oils & Foods Pvt. Ltd. v Directorate of Enforcement, 2016 SCC OnLine Del 475 , the Court noted that the predicate offense which gave rise to proceeds of crime was committed prior to 01-07-2005 or that it came to be included in the Schedule on 01-06-2009 would clearly not be determinative and in any case an action under the Act founded on the commission of that offense provided the act of money laundering is alleged to have been committed after the coming into force of the Act cannot be held or understood to be a violation of Article 20(1) of the Constitution. As long as the act of money laundering is alleged to have been committed post the enforcement of the Act, proceedings initiated in respect thereof would clearly be sustainable.
The Court further observed that the Act is aimed at the offense of money laundering. While the commission of a predicate offense may be a condition precedent for an allegation of money laundering being laid, it is the activities of money laundering alone which would determine the validity of proceedings initiated under the Act. Consequently, it must be held that the mere fact that the offenses of Sections 420 and 120-B of the Penal Code came to be included in the Schedule on 01-06- 2009, that factor would not detract from the jurisdiction of the respondents to initiate action in respect of acts of money laundering that may have taken place or continue post the enforcement of the Act itself.
Thus, the Court allowed the petition and quashed the impugned proceedings arising out of the order of attachment and show cause notice dated 13-01-2022 holding that the allocation of a coal block in itself will not give rise to any monetary gains. It was only when the same was utilized that the question of illegal gains would arise.
[Prakash Industries v. Directorate of Enforcement, 2022 SCC OnLine Del 2087, decided on 19-07-2022]
Advocates who appeared in this case :
Mr. Kapil Sibal, Senior Advocate with Mr.Ankur Chawla, Mr.Vijay Aggarwal, Mr. Gurpreet Singh, Mr. C.B. Bansal, Mr. Aamir Khan, Ms. Aparajita Jamwal and Mr. Bakul Jain, Advocates, for the Petitioners.
Mr. S.V. Raju, ASG with Mr. Zoheb Hossain, Mr. Anshuman Singh, Mr.Ankit Bhatia and Mr. Harsh Paul Singh, Advocates, for the Respondents.
*Arunima Bose, Editorial Assistant has reported this brief