New Delhi: Chhattisgarh’s Chotia coal block was allocated to Prakash Industries two decades ago, but then, the Supreme Court cancelled the “fraudulent” grant. Now, the Delhi High Court (HC) has held that the Rs 227 crore profits made by the steel & power company through the allotment of the coal block qualify as “proceeds of crime” under the Prevention of Money Laundering Act (PMLA).
This recent HC order has revived the Enforcement Directorate’s attachment of the gains.
Delivering the order, a division bench of high court Justice Anil Kshetrapal and Justice Harish Vaidyanathan Shankar has extended the PMLA’s reach to allocations of natural resources. The benefits from a fraudulent grant of public assets can be attached as tainted property, the HC has held.
The Delhi High Court was hearing the ED’s appeal against a 2022 single-judge bench’s ruling that quashed its attachment of the profits.
The single-judge bench’s order was delivered after the hearing of a lawsuit filed by Prakash Industries against the ED’s attachment of the Rs 227 crore. At the time, the court had held that the coal block allotment itself could not be considered “property” or “proceeds of crime” under the PMLA.
“Proceeds of crime” under the PMLA is property derived—be it, directly or indirectly—from a criminal activity, related to a “scheduled offence” under the law. The definition is broad, and the Parliament and courts have extended it to a range of activities, so the ED can attach and confiscate assets linked to unlawful gains.
Setting aside the single-judge bench’s order, the HC has now held that any allocation of a natural resource through fraud amounts to “property” under the PMLA and that the law covers profits made from the exploitation of such an allocation.
This case turns the definition of key words in the PMLA on its head, specifically what the court counts as “property” and what the court qualifies as “proceeds of crime”.
ThePrint explains in this report.
‘Narrow view’
The case arose from the allocation of the Chotia coal block in 2003 to Prakash Industries, a major steel and power producer. In 2012, PIL activist Manohar Lal Sharma challenged the arbitrary allocation of coal blocks between 1993 and 2010. In 2014, calling hundreds of allotments arbitrary and illegal, the Supreme Court cancelled them. It asked the CBI to continue to investigate the coal block allocations.
There are two CBI FIRs, both alleging that Prakash Industries obtained its coal block via misrepresentation. The Delhi High Court quashed the first FIR in 2014. The ruling is currently under challenge before the SC. The CBI filed the second FIR in 2016, followed by a chargesheet and a supplementary report in 2021.
Based on the second CBI FIR, the ED registered a case in 2017. In 2021, the ED attached assets worth Rs 227 crore, as the “proceeds of crime”. It arose from fraudulent representations, the agency said.
Agreeing with the ED, the Delhi High Court has now held that the single judge adopted an unduly narrow view of both “property” and “proceeds of crime”.
Section 2(1)(v) of the PMLA defines “property” broadly as any asset “of every description, whether corporeal or incorporeal, tangible or intangible…”. Section 2(1)(u) defines “proceeds of crime” as any property obtained as a result of criminal activity, and Section 3 makes it an offence to be involved in “any process or activity connected with the proceeds of crime”.
The single-judge bench had taken a narrow view of these definitions, reasoning that since the coal block only gave Prakash Industries a right to apply for a mining lease, it could not be considered property. The fraud that the ED was alleging ended on the date the company applied for the allocation in September 2003, the judge held.
Money laundering could not be said to have occurred because “no proceeds of crime had been generated as on that date”, the judge added.
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‘Continuing crime’
The Delhi High Court, on the other hand, interpreted the provisions differently. It referred to Black’s Law Dictionary and Article 300A of the Constitution to interpret property as “inclusive and expansive”. Constraining the definition to physical assets would ignore the realities of modern commerce, it said.
“The contemporary world, dominated by a commercial landscape where economic transactions are shaped by intangible rights and digital assets, to construe the definition of ‘property’ in a narrow or traditional sense, would not only amount to restricting the approach of the court to the innovative nuances of the modern commercial world but also create an impediment for the judiciary to keep up its pace with the evolving jurisprudence,” it observed.
The Delhi High Court also rejected the single judge’s interpretation of “proceeds of crime”. The fraudulent act of securing the coal block formed the “first step in a chain of subsequent events”, leading to a cascading effect on events, including the extraction of the coal, the court added.
Also, the HC observed that financial benefits earned after allocation were not distinct from the benefits through the initial move, but belonged to the same tainted economic chain.
The judges relied on a 2022 SC decision in the Vijay Madanlal Choudhary case. According to the Supreme Court’s judgment in that case, money laundering is not dependent on the date of the underlying offence. Instead, it depends on when a person indulges in an activity that is connected with the proceeds of crime.
“The offence of money laundering is not dependent on or linked to the date on which the scheduled offence, or if we may say so, the predicate offence has been committed. The relevant date is the date on which the person indulges in the process or activity connected with such proceeds of crime,” the top court had then noted.
Based on that SC order, the Delhi High Court called money laundering a continuing offence. It said the single judge’s ruling overlooked the provision of seeing it as continuing offence.
The court upheld the ED’s power to attach properties. Section 5(1) of the PMLA allows for the “provisional attachment” of property in cases where the ED has reason to believe the property constitutes proceeds of crime and may be transferred or concealed.
To attach properties, the ED should show a connection with a scheduled offence, demonstrate the generation of proceeds of crime and the participation of the accused, as well as record its reasons to believe that the property may be transferred or concealed.
“Therefore, once the directorate has made a prima facie case, establishing the predicate offence, its nexus to the proceeds and reason to believe, the burden shifted to PIL to prove that the property is untainted,” the Delhi High Court observed, upholding the order of attachment.
(Edited by Madhurita Goswami)
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