2025 (12) TMI 1147 - AT - Money Laundering

Coal block allocation letter and share premium funds treated as 'proceeds of crime' under PMLA; attachment upheld, appeal dismissed.

The dominant issue was whether the coal block allocation letter and related funds constituted 'property' and 'proceeds of crime' under the PMLA so as to ... Money Laundering - proceeds of crime - Provisional Attachment Order - no allegation in either the FIR or in the charge-sheet filed by the CBI (Central Bureau of Investigation) against the Appellant Company about it having cheated any investor or shareholder or having misrepresented facts to the public - HELD THAT:- The letter dated 21.11.2008 constituted property within the meaning given under PMLA and provided enablement for the commission of offence of money laundering. It is also matter of record that the Ld. Special Judge (CBI) Patiala House Court, New Delhi, after trial had on 19.05.2017 convicted the accused. Subsequently the Appellant was fined Rs. 1 Crore. The Scheduled offences of Section 420 IPC read with Section 120 B IPC and Section 13 (2) read with Section 13 (1) (d) of the Prevention of Corruption Act, 1988 were found proved against the Appellant and other co-accused, for falsely inflating the net worth of the Company and the existing production capacity thereby having committed offences of cheating and criminal conspiracy, which facilitated the allocation of the Thesgora-B/Rudrapuri Coal Block - in view of the Scheduled offences having already been proved against the Appellant vide Order dated 19.05.2017 of the Ld. Special Judge (CBI), Patiala House Court, New Delhi that the letter of allocation is the tainted property arising from the Scheduled offences of having committed cheating and having indulged-in conspiracy. Appellant is not convinced with the argument of the Appellant that since the letter dated 21.11.2008 of the MoC did not yield coal excavation hence there was no further PoC, even if the said letter is regarded as tainted property. It is not denied that the Appellant Company obtained share application money with and without premium, however, the Appellant has contested that such money could be regarded as PoC. It is concluded that even if share application money and share premium may have been camouflaged as apparently arising from legal transactions, its foundation is inherently rooted in misrepresentation and cheating. Moreover, its inextricable nexus with the tainted property vested in the letter of allotment cannot be erased irrespective of the temporal tagging of such collected money, which ultimately has been engendered as a result of the criminal activity relating to the Scheduled offence, that has already been found proved. The confirmation of the attachment of the ‘value thereof’ such PoC through the Impugned Order cannot be set aside at this stage. The appeal is dismissed being devoid of merit. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the coal block allocation letter, though not followed by actual mining, constitutes 'property' capable of being treated as tainted property under the PMLA and relevant for identifying 'proceeds of crime'. (ii) Whether share application money and share premium received by the company (including amounts received through private placement and at varying premium), could be treated as 'proceeds of crime' as property derived or obtained directly or indirectly from criminal activity relating to the proved scheduled offences, notwithstanding (a) absence of investor complaints, (b) alleged business loss and alleged legitimate utilisation of funds, and (c) timing of certain receipts prior to the allocation letter. (iii) Whether the confirmation of attachment under the PMLA (covering bank balances/FDRs and immovable properties up to the quantified 'value' treated as proceeds of crime) was liable to be interfered with on the above grounds. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Coal block allocation letter as 'property' notwithstanding no mining Legal framework discussed by the Tribunal: The Tribunal examined the definition of 'property' under Section 2(1)(v) PMLA (including the statutory clarification that 'property' includes property used in the commission of a scheduled offence) and treated the allocation letter as an intangible right conferring a valuable interest. Interpretation and reasoning: The Tribunal held that the allocation letter conferred a valuable right enabling the holder to apply for prospecting/mining rights and was therefore a valuable interest. Consequently, even if coal was not excavated and the allocation was later cancelled, the allocation letter itself constituted 'property' within the PMLA scheme and served as the enabling instrument connected with the money-laundering enquiry. Conclusion: The Tribunal found that the allocation letter constituted 'property' for PMLA purposes and could be treated as tainted property arising from the criminal activity relating to the scheduled offences proved against the company. Issue (ii): Share application money and share premium as 'proceeds of crime' (directly/indirectly), despite absence of investor complaints, alleged loss/legitimate use, private placement, and timing Legal framework discussed by the Tribunal: The Tribunal applied the definition of 'proceeds of crime' under Section 2(1)(u) PMLA, including the statutory clarification that proceeds of crime include property derived or obtained not only from the scheduled offence but also from any criminal activity 'relatable to' the scheduled offence, and that such derivation may be direct or indirect. The Tribunal also relied on the breadth of 'property' and 'proceeds of crime' as understood within the PMLA scheme. Interpretation and reasoning: The Tribunal treated the scheduled offences as established on record because the competent criminal court had found cheating and conspiracy proved in relation to misrepresentation (inflated net worth/production capacity) used to facilitate the allocation. On that basis, the Tribunal rejected the contention that there could be no proceeds of crime merely because no mining revenue was earned; it reasoned that the tainted property and benefits traceable to the criminal activity could exist even without mining. The Tribunal further held that share application money and premium could be traced to the tainted allocation-related criminal activity, even if received through transactions that appeared lawful in form. It found that the funds were collected on the strength of the coal block allocation/prospect, noting that shares were issued at high premiums despite insignificant/declining earnings per share, and that certain high-premium shares were later sold at a very low price when the project failed to obtain clearances. The Tribunal concluded that the absence of investor complaints did not negate proceeds of crime: attachment under PMLA turns on traceability of property/value to criminal activity relating to scheduled offences, not on whether a separate predicate offence exists for later transactions or whether victims complain. Timing and 'temporal impossibility' argument: Although the company argued that some monies were raised before the allocation letter, the Tribunal relied on record findings that even if money had been received earlier, the actual allotment of shares occurred after the coal block advertisement and application process began. Reading together the statutory clarifications to 'property' and 'proceeds of crime,' the Tribunal held that receipts could still qualify as proceeds of crime if they were directly or indirectly derived from criminal activity relatable to the scheduled offences, and that timing alone could not sever that nexus. Loss and lawful utilisation argument: The Tribunal held that whether the company ultimately incurred loss, or used funds for repayment of loans/capital expenditure/creditors, was irrelevant to the characterisation of the funds as proceeds of crime. The nature of proceeds of crime was not determined by subsequent deployment or profitability; the relevant question was the nexus to criminal activity relating to the scheduled offences. Conclusion: The Tribunal conclusively held that the share application money and share premium constituted proceeds of crime (or the 'value thereof') as they were inextricably linked, directly or indirectly, to the criminal activity relating to the scheduled offences and the tainted allocation-related property, notwithstanding private placement, absence of investor complaints, later business loss, or claimed legitimate use. Issue (iii): Validity of confirmation of attachment to the extent of the quantified 'value' treated as proceeds of crime Legal framework discussed by the Tribunal: The Tribunal treated the attachment as sustainable once it found (a) existence of tainted property/proceeds of crime within Section 2(1)(u) and (b) that the attached assets represented the proceeds of crime or their 'value'. Interpretation and reasoning: Having held that the allocation letter was tainted property and that share application money/share premium had an inextricable nexus with the criminal activity relating to the scheduled offences, the Tribunal held that the confirmation of attachment of the 'value thereof' could not be set aside 'at this stage.' Conclusion: The Tribunal upheld the confirmation of attachment of the identified movable and immovable properties to the quantified extent treated as proceeds of crime/value thereof and dismissed the appeal.