Delhi High Court
Case BriefsHigh Courts

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.

Issue 1: Whether allocation of coal is ‘proceeds of crime’ under Section 2 (1)(u) of Prevention of Money Laundering Act, 2002?

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

Case BriefsTribunals/Commissions/Regulatory Bodies

National Green Tribunal (NGT), Southern Zone, Chennai: While imposing a fine of Rs 41.21 crores on Singareni Collieries Company Limited, for violation of environmental clearance conditions and mining excess coal, the Coram of Justice K. Ramakrishnan (Judicial Member) and Dr Satyagopal Korlapati (Expert Member) expressed that,

“The Government Corporations are expected to be more law abiding and if any leniency or discrimination is shown for committing violation, then it is very difficult to maintain the rule of law, if any violations were committed by other persons. There will not be any moral right for the regulators to take action against others, if similar violations were committed by them.”

A resident of Telangana filed an application regarding the violation committed by respondent 1 in respect of violation of conditions in the Environmental Clearance (EC) and Consent granted and also pollution caused on account of the operation of the unit.

Allegations

It was alleged that the applicant along with 700 families were living adjacent to the Opencast Coal Mine operated by respondent 1 facing severe air, noise and water pollution besides severe heat due to massive blasting, drilling, and extraction of coal in the Opencast Mine.

Analysis and Decision

Tribunal noted that the grievance of the applicants was that, SCCL, a Government-owned public sector undertaking corporation had conducted their operation without necessary clearances and also in violation of the conditions of the Environmental Clearance (EC) granted and also doing excess mining, causing pollution to the neighbouring water bodies and properties of the residents of the locality both air and sound. Damage was being caused on account of the indiscriminate unscientific manner in which blasting was being done.

In a way it was admitted by the SCCL themselves that they had done excess mining than the permitted quality and when they applied for an expansion of the project, it was treated as a violation case, hence proceedings were initiated by filing a complaint under Section 19 of the Environment (Protection) Act, 1986.

The Joint Committee, after conducting the Ambient Air Quality and Vibration Study, found that the Ambient Air Quality and the sound level were within the permissible limit and the pollution control mechanism provided was adequate and that was not causing any dust pollution as claimed by the applicants.

The Joint Committee had come to the conclusion that except for excess mining and also partial cause for damage to the houses on account of the vibration caused during blasting, there was no other violation noted by the Joint Committee. 

It is seen from the report that excess mining was done at the instance of the Government to meet the supply of coal to thermal power stations to meet the power demand. It may be mentioned here that though it is a Government owned corporation, they are not expected to exploit natural resources, as no one including the Government said to be the owners of the natural resources are only the trustees to hold the natural resources to be used in a scientific manner so as to make the natural resources available for the generation to come, applying the “Doctrine of Public Trust”. 

Further, it was noted from the Joint Committee that on account of excess mining, they earned a profit of Rs 588.60 Crores in 11 years and 3% of that amount namely, Rs 17.65 Crores had to be contributed to remediation and including this amount, an amount of Rs 26,67,00,000/- (Rupees Twenty Six Crores and Sixty Seven Lakhs only) was directed to be produced as Bank Guarantee, which they had produced.

Coram directed the Mining Department to calculate the penalty for the excess mining done in view of the Supreme Court directions issued in Common Cause v. Union of India, (2017) 9 SCC 499.

Considering the period of violation, Tribunal opined that instead of 3% (Three percent), 10% (Ten percent) of the profit namely, Rs 58.86 Crore (Rs.588.60 Crore x 10%) can be imposed as compensation for excess mining and deducting Rs.17.65 Crores which was directed to be utilized for remediation purpose, the balance amount of Rs. 41.21 Crores will have to be paid by the Singareni Collieries Company Limited (SCCL) as compensation for excess mining done by them and this amount will have to be paid to the Telangana State Pollution Control Board within a period of 3 (Three) months.

Telangana State Pollution Control Board was directed to identify the persons whose houses were damaged due to vibration caused on account of blasting and quantify the amount required for repairing the houses.

SCCL was directed to comply with the recommendations of the Joint Committee and also conditions imposed in the Environmental Clearance (EC) already granted and subsequently granted for their combined expansion project, enhancing the capacity to 5 MTPA.

The gist of the Directions

(i) The Singareni Collieries Company Limited (SCCL) is directed to pay a compensation of Rs 41.21 Crores [i.e. Rs.58.86 Crores (10% of the profit) – Rs 17.65 Crores (3% of the profit) which was directed to be adjusted towards the remediation plan] within a period of 3 (Three) months with the Telangana State Pollution Control Board and if the amount is not paid within that time, the State Pollution Control Board is directed to take steps to recover the amount from them by requesting the District Collector to initiate revenue recovery proceedings.

(ii) The Mining Department is directed to calculate the penalty payable for the excess mining done in view of the directions issued by the Supreme Court in Common Cause V. Union of India (2017) 9 SCC 499, as even at the time when it was treated as a violation case, the project proponent/SCCL has filed an undertaking that they will abide by the directions issued by the Supreme Court in Common Cause’s case cited supra.

(iii) The Telangana State Pollution Control Board in consultation with the District Collector of the concerned area, identify the persons whose houses have been damaged as observed by the Joint Committee partially due to vibration caused on account of blasting during the initial stages and the amount required for repairing the houses will have to quantified and the same will have to be paid to those persons whose houses have been identified as damaged on account of the operation of the Singareni Collieries Company Limited (SCCL) and this amount will have to be realized from SCCL. The environment compensation amount will have to be utilized for the purpose of preparing a welfare scheme for protecting the welfare and interest of the people who are residing in and around the coal mining area who are likely to be affected by the project activities and also a portion of the out of compensation will have to be utilized for meeting the welfare of the Tribal settlement, if any, situated in Khammam District or nearby districts. Mode of welfare scheme etc. will have to be evolved by the Committee appointed by this Tribunal for this purpose.

(iv) The preparation of scheme must be in consultation with the Chief Secretary to Government, State of Telangana and the Special Chief Secretary to Government – Department of Environment, Science & Technology and that will have to be jointly implemented by the State Pollution Control Board and the concerned District Collector.

(v) The Singareni Collieries Company Limited (SCCL) is directed to comply with the recommendations of the Joint Committee and also conditions imposed in the Environmental Clearance (EC) already granted and subsequently granted for their combined expansion project, enhancing the capacity to 5 MTPA. The expanded project can be permitted to be carried by the project proponent namely, the Singareni Collieries Company Limited (SCCL) after complying with the direction issued by the MoEF&CC while granting the Environmental Clearance (EC) as violation case and also after depositing the amount as directed by this Tribunal as compensation for excess mining done over and above the permitted quantity mentioned in the Environmental Clearance (EC) earlier granted.

(vi) In order to monitor the implementation of certain CSR Projects said to have been launched by the project proponent, we appoint a Joint Committee under the chairmanship of the Special Chief Secretary to Government, Department of Environment, Science and Technology, State of Telangana with following members (i) a Senior Officer from the Integrated Regional Office, MoEF&CC, Hyderabad, and (ii) the District Collector – Khammam District and they are directed to monitor the compliance of the Environmental Clearance (EC) conditions and also the projects said to have been launched by the SCCL in compliance with the direction issued in the Environment Remediation Plan as well as their CER activities and if they did not comply with the same, the MoEF&CC is directed to take appropriate action for violation of the conditions of the Environmental Clearance (EC) against the SCCL.

(vii) The Telangana State Pollution Control Board is directed to monitor the pollution control mechanism and compliance of conditions in the Environmental Clearance (EC) and Consent granted periodically and if there is any violation found, then they are directed to take appropriate action against the SCCL in accordance with law.

(viii) The Singareni Collieries Company Limited (SCCL) is also directed to take all necessary precautions to avoid complaints of pollution being caused on account of their operation both air and soil and also control the vibration and sound that is likely to be emanated during blasting operation to avoid complaints from the nearby residents.

(ix) The Singareni Collieries Company Limited (SCCL) is also directed to provide necessary greenbelt and also other pollution control mechanism to avoid air and dust pollution being caused. They are also directed not to discharge any trade effluents or liquid waste generated during the operation of their mine and they are directed to strictly implement the ZLD within their unit.

(x) The Singareni Collieries Company Limited (SCCL) is also directed to expedite the laying of railway track and complete the same and take steps to transport the coal using railway line instead of road as directed to be complied with within the timeline specified in the Environmental Clearance (EC) granted.

In view of the above directions, the applications were disposed. [Banothu Nandu Nayak v. Singareni Collieries Company Ltd., 2022 SCC OnLine NGT 127, decided on 6-5-2022]


Advocates before the Tribunal:

O.A. No.174/2020 (SZ):

For Applicant(s): Mr. Sravan Kumar.

For Respondent(s): Mr. A. Sanjeev Kumar, Spl. Govt. Pleader for R1. Mrs. Me. Saraswathy for R2.

Mr. T. Sai Krishnan for R3.

Mrs. H. Yasmeen Ali for R4 & R5.

O.A. No.20/2021 (SZ):

For Applicant(s): Mr. Sravan Kumar.

For Respondent(s):

Mrs. Me. Saraswathy for R1.
Mr. T. Sai Krishnan for R2.
Mr. A. Sanjeev Kumar, Spl. Govt. Pleader for R3

Legislation UpdatesStatutes/Bills/Ordinances

President promulgated — The Mineral Laws (Amendment) Ordinance, 2020

The ordinance for amendment in the MMDR Act 1957 and the CMSP Act 2015 has been promulgated. The Union Cabinet had earlier approved the amendments intending to open up new areas of growth in the coal & mining sector.

The amendments in the Acts would enable the following:

  1. Enhancing the  ease of doing business
  2. Democratization of the coal mining sector by opening it up to anyone willing to invest.
  3. Offering of unexplored and partially explored coal blocks for mining through prospecting license-cum-mining Lease (PL- cum-ML).
  4. Promoting Foreign Direct Investment in the coal mining sector by removing the restriction and eligibility criteria for participation.
  5. Allowing of the successful bidder/allottee to utilise mined coal in any of the plants of its subsidiary or holding company
  6. Attracting large investment in the coal mining sector as restrictions of end-use has been dropped.

The details are as given below:

  1. Amendments in respect of the Ministry of Coal

Amendment 1:   To provide for allocation of coal blocks for composite prospecting licence-cum-mining lease (PL-cum-ML)

Earlier, there was no provision for grant of composite prospecting licence-cum-mining lease (PL-cum-ML) in respect of coal/ lignite. A coal/lignite block could be either be allocated for PL or for ML. The Amendment has enabled the allocation of coal blocks for composite prospecting licence-cum-mining lease (PL-cum-ML) which will help in increasing the inventory of coal/ lignite blocks for allocation. Coal blocks with different grades and in a wide geographical distribution will now be available for allocation.

The Sections involved were Section 4(2), 5(1), 8(4), 8(8), 8(9) and 31(2)(b) of the CMSP Act and Section 11A and 13(2) of the MMDR Act

Amendment 2:   Clarifying the power of Central Government to specify the purpose of allocation and that ‘any’ company can participate

There was a lack of clarity earlier in the language of the provisions in the Acts leading to a restrictive interpretation of the eligibility conditions in the auction. It has now been clarified that any company selected through auction/ allotment can carry on coal mining operation for own consumption, sale or for any other purposes, as may be specified by the Central Govt. allowing wider participation and competition in the auction.

Thus, the companies which do not possess any prior coal mining experience in India but are financially strong and or have mining experience in other minerals or in other countries can now participate in auction of coal/lignite blocks. This would also allow the implementation of the 100% FDI through automatic route for sale of coal.

The Sections involved are 11A of the MMDR Act and Section 4(2) and 5(1) of the CMSP Act.

Amendment 3:   Flexibility in deciding the end-use of Schedule II and III coal mines

Hitherto, the Schedule II and III coal mines could only be auctioned to companies that are engaged in specified end-use. Now, the omission of sub-section (3) of Section 4 of the CMSP Act has provided flexibility to the Central Govt. in deciding the end-use of Schedule II and III coal mines under the CMSP Act. This would allow wider participation in the auction of Schedule II and III coal mines, for a variety of purposes such as own consumption, sale or for any other purpose, as may be specified by the Central Govt.

Amendment 4:   Termination of the allocations made under the CMSP Act, their reallocation and compensation

The CMSP Act and the CMSP Rules were silent on the subsequent allocation of coal mines upon the termination of allocations made under the Act as well as rights and liabilities of the allottee, whose allocation has been terminated. With the amendment of Section 8 (insertion of sub section (13), (14) and (15) in CMSP Act), it is has become possible to provide for allocation of the coal mine to next successful bidder or allottee, subsequent to termination of its allocation along with the matters incidental to it. The Act now also provides for compensation to the allocated whose allocation has been terminated.

Amendment 5:  Appointment of Designated Custodian in mines under production:

Earlier, there was no provision for appointment of designated custodian for management of the mines under production whose vesting/ allotment order has been cancelled. By amending Section 18 of the CMSP Act, it is now possible for the appointment of designated custodians for management of the mines, apart from Schedule II mines, which have come under production and whose vesting/ allotment order has been cancelled. It, therefore, addresses the issue of management and operation of the mines after their termination, which have come under production.

Amendment 6:  Dispensing with the requirement of previous approval in certain cases

With the amendment of Section 5 and 17A of the MMDR Act, the repetitive and redundant provision requiring previous approval of the Central Government even in cases where the allocation or reservation of coal/ lignite block has been made by the Central Govt. itself has been done away with. This would significantly reduce the time taken for operationalisation of coal/ lignite mines.

Amendment 7:   Entitlement to successful allocattee to utilise the coal mined in plants of Holding and Subsidiary company:

Earlier a successful allocattee was entitled to utilise the mined coal only in any of its plants. With the amendment of  Section 20(2)of the CMSP Act now the reference of Holding company and the Subsidiary company has been added. This would make the successful bidder/allottee entitled to utilise mined coal in any of its plants or plants of its subsidiary or holding company.

Amendment 8:  Certain Consequential and clarificatory Amendments:

Certain consequential and clarificatory amendments were required in the language of various provisions for the smooth implementation of the CMSP Act. Section 9 and 20(1) of the CMSP Act have now been amended which has resulted in the clarification of language of Section 9 (related to priority of disbursal) Further, language of Section 20(1) has been clarified to avoid any arrangement between two coal linkage holders as the same is not subject matter of the CMSP Act.

  1. Amendments in respect of Ministry of Mines

Amendment 1:   Insertion of new section 4B (after section 4A) to enable the Central Govt. to prescribe conditions for ensuring sustained production by the holder of mining leases, who have acquired rights/approvals/clearances etc. transferred from the previous lessee, as per the provisions under section 8B, which is incorporated in this amendment:

The pre-amended MMDR Act, provided a time period of two years for the new lessee for starting the mining operation, whereas the newly introduced section 8B of this Act, provides for deemed acquiring of valid rights /approvals /clearances by the new lessee. The objective of the amendment is to ensure the continuity of production of minerals. Hence, there is a need to specify the conditions for production by the new lessee, who will avail benefits of section 8B. Further, the Central Government derives power to prescribe the conditions for the new lessees to commence production without prejudice to the time period of two years for starting the production prescribed in Section 4A.

Amendment 2:  Amendment of Section 8A by introducing a proviso to clarify the intent of Section 8A(4) of the MMDR Act:

The previous section 8A(4) of the MMDR Act provided for auction of leases on the expiry of the lease. There existed scope for ambiguity about initiating the advance action/process by the State Government for notifying the expiring leases for auction. With the amendment, it has been clarified that State Government can take up advance steps for auction of blocks before the expiry of lease period. This would ensure that the production of the minerals from such blocks can be seamlessly continued.

Amendment 3:  Provisions to ensure that the successful bidder of mining leases expiring under Section 8A(5) & 8A(6), shall acquire all valid rights/approvals/clearances; for a period of two years and within which period he/she shall apply for a fresh licence:

The working mining leases of Odisha are expiring during 2020. These leases produced about 58 Million Tonne of iron ore, 1.80 Million Tonne of chromite and 0.77 Million Tonne of manganese during the year 2018-19.  Statutory clearances required to start the mining operations for the new leases have to be granted expeditiously to enable the new lessees to continue the mining operations.

The new lessee has to obtain 20 approvals to start the mining operations, of which 9 are related to different Central Govt. Ministries and the remaining are from the State Government. In the normal course, the minimum time period required to obtain these approvals vary from two to three years. This whole process would delay the commencement of mining operations by the new lessees. Any delay in commencing the mining operations by the new lessee would adversely affect the mineral production in the country, which in turn would impact the important downstream industries like steel, cement, etc.

With the insertion of new section 8B (after section 8A) of the MMDR Act, the successful bidders of the mining leases expiring under section 8A(5) & 8A(6) of the MMDR Act, deemed to have acquired all valid rights/ approvals/ clearances/ licenses and the like; for a period of two years and can start mining operation without loss of time. Seamless continuance of mining operations is in public interest as this will prevent disruption in the supply of raw material (mineral) to the industries.

The above amendments (1,2&3) pertaining to Mines will promote ease of doing business and will benefit the holders of auctioned brownfield mining leases on the expiry of their lease period starting from March 2020 and then from March 2030.

Amendment 4:   Provisions to enable the holders of Non-Exclusive Reconnaissance permit of deep seated minerals and other minerals of the national interest to obtain composite licence (PL-cum-ML) or Mining Lease:

The previous legislative provisions did not allow the non-exclusive reconnaissance permit holders to apply for a mining lease. The private participation in exploration was therefore negligible. In order to enhance the exploration of deep-seated minerals, a facilitating environment has been envisaged to be provided with the insertion of new proviso after sub-section 2 of section 10C. This amendment would allow NERP holders of deep-seated minerals or any minerals of the national interest to apply for a composite licence (PL-cum-ML) or Mining Lease. This would hence augment the exploration of the deep-seated minerals and minerals of national interest, some of which are strategically important for the country.

Amendment 5:   Empowers the Central Government to frame rules in respect of newly introduced sections:

The difficulty of the Central Govt. which had to derive power to make rules to implement the provision of the amended Act has now been removed with the insertion of new clauses in sub-section 2 of section 13. This would give the Central Government power to frame subordinate legislation to implement the intent of the Ordinance.


Ministry of Coal

[Press Release dt. 11-01-2020]

[Source: PIB]