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2025 (11) TMI 257
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....te involving substantially similar questions of fact and law, they are, with the consent of learned counsel for the parties, being disposed of by this consolidated judgment. Nevertheless, for the ease of reference and with the consent of the parties, LPA 102/2023 is being treated as the lead case. BRIEF BACKGROUND: 2. The dispute between the parties arises from the allocation of Fatehpur Coal Block in favour of M/s Prakash Industries Limited [hereinafter referred to as 'PIL']. The primary allegations against PIL are two-fold. Firstly, it is alleged that PIL obtained the allocation of coal block, through fraudulent means; and secondly, prior to actual and formal allocation made in favour of PIL, it allegedly misrepresented before Bombay Stock Exchange [hereinafter referred to as 'BSE'] that it had already received the allocation. This misrepresentation made by PIL before BSE purportedly caused an artificial rise in the share price of PIL, following which shares were sold on a preferential basis, thereby generating alleged proceeds of crime. 3. The present round of litigation traces its genesis to an application dated 12.01.2007, submitted by PIL to the Ministry of Coal for ....
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....ants, the report did not reach to its conclusion. Consequentially, a chargesheet was filed by CBI on 17.11.2021, leading to issuance of summons by the competent court. This order then came to be challenged by PIL before the Supreme Court by way of SLP (Crl) Nos. 656-657/2022 captioned M/S Prakash Industries Ltd. v. CBI and SLP (Crl) No. 3360/2022, whereby the Supreme Court vide Orders dated 06.05.2022 and 13.05.2022, stayed the proceedings before the Special Court and the same is operational till date. 7. Parallelly, the Directorate also registered an ECIR bearing no. ECIR/03/CDZO/2014 on 30.08.2014 against PIL. Pursuant thereto, an investigation was initiated on 23.11.2016, during which jewellery worth Rs.1.66 crores, along with related records, was seized. Accordingly, a complaint under Section 5 of the Prevention of Money Laundering Act, 2002 [hereinafter referred to as 'PMLA'] was filed before the Adjudicating Authority and allowed on 05.04.2017. The aforesaid order was challenged by PIL before the Appellate Tribunal under PMLA, whereby, the Tribunal vide order dated 18.07.2019, while allowing the retention of seized documents, directed for release of the seized jewellery. T....
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....f the Appeal; and II. Submissions concerning the merits of the case. I. SUBMISSION ON BEHALF OF THE PARTIES ON MAINTAINABILITY OF THE APPEAL Preliminary objection on maintainability by the learned senior counsel for PIL 14. Learned senior counsel for PIL, while raising a preliminary objection on the maintainability of the present Appeal, has submitted that he wishes to adopt the arguments advanced by him in a similar batch of Appeals namely LPA 588/2022 and the connected matter, which were heard alongside the present Appeals. Accordingly, this Court permits PIL to adopt the submissions made therein in the present batch since the issues involved are similar in nature. The following submissions were made by PIL which are reproduced hereinbelow- "13.5 With respect to ML Sharma (Supra), it is contended that the bar imposed in the said judgement pertains solely to criminal proceedings. If the reliance placed by the Directorate on ML Sharma is accepted, it would imply that once a PAO is issued under Section 5(1) of PMLA, the only available remedy against it would be to approach the Supreme Court under Article 136 of the COI. 13.6 The aforesaid interpre....
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....d to as 'COI']. 15.3 The next leg of the argument is to the effect that the petition before the LSJ was filed on a jurisdictional ground, namely, that since a closure report had been filed by the CBI, no proceeds of crime could be said to exist in the absence of a scheduled offence. Against this backdrop, it is submitted that the aforesaid ground was rendered infructuous upon the subsequent filing of a chargesheet by the CBI, thereby divesting the LSJ of the competence to exercise its jurisdiction. 15.4 Further, it is the case of the Directorate that the PAO was pending confirmation before the Adjudicating Authority at the relevant time. Therefore, the LSJ ought not to have interfered especially when Section 8 of the PMLA provides a complete statutory mechanism for adjudication of such orders. II. SUBMISSIONS BY THE PARTIES ON THE MERITS OF THE CASE Submissions on behalf of the Directorate 16. On the merits of the case, learned Counsel for the Directorate has made his submissions under two limbs, (i) erroneous questions framed by LSJ for its consideration; and (ii) the incorrect interpretation of the provisions of the PMLA. i. Erroneous questions....
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....t is the case of the Directorate that the interpretation of the LSJ, that trading in shares does not constitute a criminal activity or a scheduled offence, and the gains arising therefrom would not fall within the meaning of proceeds of crime, is contradictory of the expansive definition of offence of money laundering as established in Vijay Madanlal Choudhary & Ors. v. UOI & Ors. 2022 SCC OnLine SC 929, wherein the Supreme Court held that the offence under Section 3 of the PMLA is of a 'wider reach". It is contended that such interpretation defeats the purpose of Section 3 of PMLA, enabling accused persons to legitimise tainted money through ostensibly legal transactions. 16.5 It is argued by the learned counsel for the Directorate that the LSJ has disregarded the significance of the term 'process' under Section 3 of PMLA, which means "a continuous and regular action or succession of actions taking place or carried on in a definite manner and leading to the accomplishment of some result." Therefore, any process or activity connected with or leading to the generation of proceeds of crime falls within the ambit of Section 3 of the PMLA. Consequently, it is submitted that the issu....
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....stries-I] to hold that a coal block allocation would not constitute proceeds of crime unless utilized for mining and extraction of minerals. However, the said judgment, presently under challenge in an appeal, is stated to be based on an erroneous understanding of the definition of "property" under Section 2(1)(v) of the PMLA. 16.9 Learned Counsel for the Directorate has also raised an objection on the findings of the LSJ at Paragraph Nos.84 and 85 of the IJ, wherein the LSJ erroneously recorded that the Directorate does not have the power to initiate action under PMLA on its own motion or based on its opinion that a particular set of facts evidences a commission of scheduled offence. However, it is the case of the Directorate that the scheduled offences under Sections 120B and 420 of IPC were already investigated by CBI and a chargesheet to that effect has already been filed. Therefore, the actions of the Directorate are stated to be based on established facts and not on its own surmise. 16.10 Controverting the position recorded at Paragraph No.90 by the LSJ, it has been contended that the LSJ erroneously records that the allocation of preference shares and the proceeds there....
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....PIL has placed reliance on Vijay Madanlal Choudhary v UOI 2022 SCC Online SC 929. 17.2 It is the case of PIL that the submission of a letter to the BSE cannot be categorized as a scheduled offence as such and the Directorate has failed to establish any connection between the alleged proceeds of crime and the properties subjected to attachment. It is contended that power under Section 5 of the PMLA could have only been exercised if it was formed on the basis of action or omission of a predicate offence, which in the present case is the misinformation by PIL vide its application dated 06.02.2007. However, the Directorate has issued PAO on the basis of the misdeclaration of the net worth made by PIL before BSE. 17.3 Further, reliance has been placed on the definition of "offence" under Section 2(n) of the Code of Criminal Procedure, 1973, to contend that Section 5 of the PMLA can only be invoked when the proceeds of crime attached by the Directorate relate to the facts and actions/omission constituting a registered predicate offence being investigated/prosecuted by a predicate agency. In the absence of the aforestated, any income/asset derived cannot be termed as proceeds of cri....
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.... 1. 2,45,00,000 Investment in M/s GCL By M/s HEPL and lying in Corporation Bank, Bhowanipur Branch, Kolkata A/c No. 510101003473693 of M/s GCL. 2. 11,86,710 Lying as fixed deposits No. 015340100288/8 dated 04.07.2017 3. 1,26,540 Lying in A/c No. 0153201100424 4. 7,160 Lying in A/c No. 0153201002578 Total 2,58,20,410 17.5 In addition, it is submitted that the information furnished before BSE was only in compliance of the terms of Securities and Exchange Board of India (Listing Obligations and disclosures requirements) Regulations, 2015, which have been in force at all material times. Furthermore, the fixation of premium at Rs. 180/- share was undertaken in accordance with SEBI guidelines governing preferential issues. 17.6 Learned senior counsel for PIL has drawn the attention of this Court to Paragraph No.5.3 of the PAO to state that holding of an extraordinary meeting of the General Body for approval of price of preferential shares was alleged to be a part of conspiracy. However, on the contrary, it is a mandatory statutory requirement under Section 81 of the Companies Act, 1956 and was undertaken in compliance of Chapter XI....
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....ate till date; resultantly, no predicate offence has been registered. 17.11 It is further contended on behalf of PIL, that there can be no proceeds of crime unless an actual offence as defined under Section 2(n) of the Code of Criminal Procedure, 1973 has been committed, a mere attempt to commit a crime without its completion thereof, cannot give rise to proceeds of crime. As such, in the present case, the letter to BSE cannot be termed as a scheduled offence since it is an admitted fact that no coal was extracted. Furthermore, it is contended that the Directorate has failed to establish any connection between the alleged proceeds and the attached assets. 17.12 Learned senior counsel for PIL, while invoking Article 20(1) of the COI, has contended that no person can be convicted or punished under an ex post-facto law. Reliance is in this regard is placed upon the judgment passed by the Supreme Court in Rao Shiv Bahadur Singh & Anr. v. State of Vindhya Pradesh AIR 1953 SC 394, wherein it was held that if the acts charged as offences became punishable only by virtue of a law enacted after their commission, the accused is entitled to protection under Article 20(1) of the COI. In ....
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....ment advanced by PIL concerning whether the LSJ rightly exercised jurisdiction under Article 226 of the COI or Article 227 of the COI. In this regard, it becomes imperative to examine the substratum upon which the writ petition was filed by PIL, the avowed purpose of which was restricted only to quashing of the PAO issued by the Directorate, whereby the properties of PIL were subject to attachment. Since, the present Appeal, in pari materia with the writ petition, impugns the validity and legality of the PAO, it is important to note that a perusal of the prayer clause in the writ petition reveals that PIL only sought quashing of the impugned PAO issued by the executive authority and no grievance pertaining to challenge against a judicial order was raised before or adjudicated by the LSJ. Consequently, it is manifest that the LSJ exercised the power under Article 226 of the COI, thereby rendering the present Appeal maintainable. 21. Having examined the foregoing, this Court deems it essential to delineate the contours of jurisdiction exercisable by the Court under Article 226 of the COI, notwithstanding the existence of an alternative efficacious remedy, as enunciated by the Supr....
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....f Section 8(3) would apply in particular case. These provisions ensure that before the PAO attains finality in any form, the affected party is accorded a fair and reasonable opportunity to present its case and assist the authority in the adjudicatory process. 26. Moreover, the statute under Section 26 provides a remedy of appeal before the Appellate Authority against the order of the Adjudicating Authority. Section 42 of the PMLA further enables a statutory appeal before the competent High Court. To put it succinctly, the statutory scheme under the PMLA incorporates a robust and multi-tiered mechanism ensuring adherence to the principles of audi alteram partem and natural justice at every stage, beginning from the issuance of notice, adjudication and confirmation to appellate remedies. 27. In the present case, the order of the Appellate Tribunal was already under challenge before this Court by PIL, in the year 2019, by W.P.(C) 9063/2019 titled as M/s Prakash Industries Ltd v Directorate of Enforcement. This Court vide its Order dated 21.09.2022, observed that the parties were ad idem that the nature of the order being challenged, forms an appeal under Section 42 of the PMLA, ....
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....ed by the Supreme Court in Whirlpool (Supra) stand attracted in the facts of the present case, this Court is of the considered view that it was not appropriate for the LSJ to interfere with the issuance of the PAO. This conclusion is fortified for two reasons: firstly, there was no infraction of the principles of natural justice, in view of the comprehensive procedural safeguards incorporated within the PMLA; and secondly, the PAO, though issued, constitutes only a provisional measure pending adjudication, and does not culminate in any final determination of rights. 30. Against the said backdrop, this Court deems it relevant and necessary to underscore that the recurring practice of invoking the extraordinary writ jurisdiction under Article 226 of the COI to challenge the validity of a PAO at every other opportunity is wholly unwarranted amounting to an abuse of the process of law. In addition to the aforestated, it is also to note that when a special statute, such as the PMLA, provides a detailed hierarchy of forums and a complete adjudicatory mechanism for redressal of grievances, bypassing such remedies by directly approaching the writ court not only clogs the judicial system....
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....ssists or knowingly is a party or is actually involved in any process or activity connected with the 1[proceeds of crime including its concealment, possession, acquisition or use and projecting or claiming] it as untainted property shall be guilty of offence of money-laundering. [Explanation.-For the removal of doubts, it is hereby clarified that,- (i) a person shall be guilty of offence of money-laundering if such person is found to have directly or indirectly attempted to indulge or knowingly assisted or knowingly is a party or is actually involved in one or more of the following processes or activities connected with proceeds of crime, namely:- (a) concealment; or (b) possession; or (c) acquisition; or (d) use; or (e) projecting as untainted property; or (f) claiming as untainted property, in any manner whatsoever; (ii) the process or activity connected with proceeds of crime is a continuing activity and continues till such time a person is directly or indirectly enjoying the proceeds of crime by its concealment or possession or acquisition or use or projecting it as untainted property or claiming i....
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....eputy Director, shall, immediately after attachment under sub-section (1), forward a copy of the order, along with the material in his possession, referred to in that sub-section, to the Adjudicating Authority, in a sealed envelope, in the manner as may be prescribed and such Adjudicating Authority shall keep such order and material for such period as may be prescribed. (3) Every order of attachment made under sub-section (1) shall cease to have effect after the expiry of the period specified in that sub-section or on the date of an order made under 3[sub-section (3)] of section 8, whichever is earlier. (4) Nothing in this section shall prevent the person interested in the enjoyment of the immovable property attached under sub-section (1) from such enjoyment. Explanation.-For the purposes of this sub-section, "person interested", in relation to any immovable property, includes all persons claiming or entitled to claim any interest in the property. (5) The Director or any other officer who provisionally attaches any property under sub-section (1) shall, within a period of thirty days from such attachment, file a complaint stating the facts of such....
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....ffence under Section 3 of the PMLA thereof. 34. In view of the aforesaid, it bears importance that this Bench has previously examined similar questions of law in Prakash Industries-I, wherein it was conclusively determined that the allocation of a coal block constitutes "property" within the meaning of Section 2(1)(v) of the PMLA. Further, it was also determined that any undue advantage, benefit, or economic gain derived or obtained, directly or indirectly, through utilisation of such property would constitute "proceeds of crime" as defined under Section 2(1)(u) of the PMLA, thereby rendering PIL, prima facie, liable for the offence of money laundering under Section 3 of the PMLA. In order to facilitate a comprehensive understanding of the aforestated legal principles adjudicated by this Bench as also applicable to the present controversy, the relevant paragraphs from Prakash Industries-I are reproduced hereinbelow: "B. SECTION 2(1)(V) OF THE PMLA: WHETHER THE ALLOCATION LETTER CONSTRUES AS 'PROPERTY'? 31. The word 'property' has been defined under Black's Law Dictionary, as, "one which is peculiar or proper to any person; which belongs exclusively to one; in t....
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....w of the aforestated, an allocation letter, especially when it confers upon the beneficiary an exclusive right to gain commercial advantage, enabling the beneficiary to derive economic gains, must be examined through this widened legal lens. 39. It is pertinent to note that, the act of allocation, in itself, may not constitute a complete offence; rather, it is the first step in a chain of subsequent events, carrying a cascading effect. These events begin with the procurement of the allocation, which is then followed by the actual extraction of coal, an act, if done on the basis of an unauthorised allocation, constitutes a separate illegal act. The allocation sets in motion the process through which the State Government is expected to act upon the recommendation made by the Central Government and facilitate the formalities flowing therefrom. This process leads to an initiation of series of administrative actions, which, if found to be tainted by criminality at the origin, ultimately results in usurpation of a public resource, which otherwise would rightfully vest in the State as a natural resource belonging to the general public at large." C. SECTION 2(1)(U) AND SE....
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....al financial gains but also sustainably targets the conduct, in the form of serious economic offences, that results in the generation of such illegal financial gains. 44. The aforestated intent of the PMLA is also corroborated with the preamble of the Act, which defines PMLA as, "an Act to prevent money-laundering and to provide for confiscation of property derived from, or involved in, money-laundering and for matters connected therewith or incidental thereto". 45. Sections 2(1)(u) and 3 of the PMLA, when put together leads us to infer that Section 3 criminalises any process or activity connected with proceeds of crime, which in turn includes property derived or obtained, directly or indirectly, by any person, as a result of criminal activity, relating to a scheduled offence and the value of such property. 46. The aforesaid position has also been rendered by the Supreme Court in Vijay Madanlal Chaudhary Judgement and the relevant paragraph is reproduced hereunder: 382.8. The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the proce....
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....ed before the same had been notified as scheduled offence for the purpose of the 2002 Act, but if a person has indulged in or continues to indulge directly or indirectly in dealing with proceeds of crime, derived or obtained from such criminal activity even after it has been notified as scheduled offence, may be liable to be prosecuted for offence of money laundering under the 2002 Act - for continuing to possess or conceal the proceeds of crime (fully or in part) or retaining possession thereof or uses it in trenches until fully exhausted. 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. These ingredients are intrinsic in the original provision (Section 3, as amended until 2013 and were in force till 31-7-2019); and the same has been merely explained and clarified by way of Explanation vide Finance (No. 2) Act, 2019. Thus understood, inclusion of clause (ii) in the Explanation inserted in 2019 is of no consequence as it does not alter or en....
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....Bench in Prakash Industries-I, upheld the validity of the PAO, with a finding that the definition of property under Section 2(1)(u) of the PMLA is deliberately wide to include both tangible and intangible assets, including rights and interests resulting into economic value. Accordingly, an allocation letter leading to an exclusive commercial benefit, falls well within the scope of an intangible property and as such constitutes proceeds of crime. Further, the misrepresentation by PIL in order to obtain such an allocation would be rendered as a criminal activity, resultantly generating proceeds of crime under Section 2(1)(u) of the PMLA. Against this backdrop, it was then established that Section 3 of the PMLA criminalises all processes connected with such proceeds, making money laundering a distinct and continuing offence which subsists as long as such illicit gains are possessed or utilized by the accused. 36. Application of the aforesaid principles to the present case becomes relevant to the extent that the definition of proceeds of crime under Section 2(1)(u) of the PMLA, not only includes the property derived directly through a criminal activity related to the scheduled offen....
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....d with the proceeds including layering through multiple transactions, integration into the legitimate economy and projection of the acquired wealth as lawful. For instance, if a public servant receives a bribe, which constitutes an offence under the provisions of the Prevention of Corruption Act, 1988, and thereafter invests that sum in narcotics trade, real estate, preferential shares or any other avenue, the taint of illegality would still continue and the entire corpus shall be liable to be attached irrespective of the subsequent channels through which it has been routed or the forms it assumes subsequently. Similarly, if the sum received as bribe is invested in share market, which later increases or goes beyond and above the value of actual investment owing to market forces or corporate actions, the entire enhanced amount shall constitute as proceeds of crime. Meaning thereby the appreciation in value does not cleanse or purify the tainted origin, more so since the augmented value is inextricably and indirectly derived from the original illicit source of bribe. 41. In view of the aforestated, it would not be imperative and/or reasonable to compartmentalize the offence of mon....
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....of the PAO to the PIL may not be incorrect. 45. To conclude, as per Section 3 of the PMLA not only the tainted property but every process or activity connected with such property falls within the ambit of money laundering. Therefore, even if the share allotment on preferential basis appears to be a "legal transaction" in form, its foundation is inherently rooted in misrepresentation and fraud underlying the core predicate offence enabling the Directorate to trace and connect such transactions to the proceeds of crime. Accordingly, the finding of the LSJ that the Directorate could not have attached the property in absence of the allotment of preferential share forming part of the report of predicate agency falls short of merit and is in contravention of provisions of the PMLA. C. POWER OF PROVISIONAL ATTACHMENT UNDER SECTION 5 OF THE PMLA: WHETHER INDEPENDENT FROM SECTION 66(2) OF PMLA? 46. Proceeding now to deal with the exercise of power by the Directorate as envisaged under Section 5 of the PMLA and whether such power is interlinked with the information to be shared to a predicate agency under Section 66(2) of the PMLA, it is noted that in Prakash Industries-I, the quest....
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....he date of allocation, rather continues as long as the benefit from the tainted property subsists. In the aforesaid background, although it is the case of PIL that the quantification by the Directorate is baseless, no credible evidence to rebut the said quantification has been produced, thereby failing to discharge the onus of proof imposed upon it once the procedural presumption arises. 57. 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. Accordingly, the Directorate, is justified in attaching the "value" of coal extracted under Section 5 of the PMLA, when the pre-requisites of attachment has been satisfied." 47. To put the above view summarily, the Directorate, under Section 5(1) of the PMLA is empowered to attach a property of equivalent value when the original proceeds of crime obtained by the accused is untraceable. However, before issuing such an order of attachment, the Directorate must necessarily record a 'reason to believe' that the person is in possession of proceeds of crime and also establish a c....
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....ision nowhere prescribes any strict timeline within which such information must be shared by the Directorate. 51. Moreover, the language used therein does not create a bar on the exercise of powers under other provisions of the PMLA. In this regard, it is also pertinent to note that a complete reading of Section 66 of the PMLA, highlights the legislative intent behind the addition of the provision, which was to merely ensure and maintain an effective flow of information between the investigating agencies and reinforce inter-agency cooperation. 52. Additionally, while interpreting the provisions of PMLA, it has to be borne in mind that time and again it has been held by the Courts through judicial precedents that PMLA is a self-contained and comprehensive legislation enacted to prevent money laundering and connected activities enabling the authorities to combat the problem of money-laundering and processes related thereto, confiscate proceeds of crime, comply with the international obligations under Vienna and Palermo Convention and meet the FATF recommendations. Therefore, the intent behind the addition of Section 66(2) of the PMLA must also be carefully examined in order to ....