Profits Earned On Bribe After Investment In Share Market Also Part Of Proceeds Of Crime, Can Be Attached Under PMLA: Delhi High Court

The Delhi High Court on Monday ruled that the profits earned on bribe money after investment in share market amounts to proceeds of crime and is liable to be attached under the PMLA.

A division bench comprising Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar said that the appreciation in value does not cleanse or purify the “tainted origin,” since the augmented value is inextricably and indirectly derived from the original illicit source of bribe.

“…if a public servant receives a bribe, which constitutes an offence under Prevention of Corruption Act, 1988, and 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,” the Court said.

“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,” it added.

The Bench allowed the appeals filed by ED challenging a single judge order in relation to the case arising from the allocation of Fatehpur Coal Block in favour of M/s Prakash Industries Limited.

A Provisional Attachment Order was issued, attaching properties valued at Rs.122.74 crores, on the premise that the undue financial gains, obtained by PIL, arising from the sale of preferential shares constituted proceeds of crime.

Vide the impugned order, the single judge held that since the issuance of preferential share did not form part of either the FIR, chargesheet or ECIR, the ER lacked the power and jurisdiction to issue the PAO.

Setting aside the single judge ruling, the Court observed that 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.

It said that the Single Judge ought not to have interfered in the matter, particularly since an appeal arising from the very same order of the Appellate Tribunal was already pending adjudication before the High Court.

Further, the Bench said that it was not appropriate for the single judge to interfere with the issuance of the PAO as there was no infraction of the principles of natural justice and that the constitutes only a provisional measure pending adjudication and does not culminate in any final determination of rights.

The Bench went ahead to observed that an allocation letter leading to an exclusive commercial benefit falls within the scope of an intangible property and constitutes proceeds of crime.

It said that 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.

The Court said that even if no separate predicate offence is registered in relation to subsequent utilisation of property to acquire funds through a legalised transaction, the classification of illegal gains used by means of a legal transaction emanating from an illegal means adopted for attaining coal block allocation would still be construed as “proceeds of crime”.

“Additionally, the offence of money laundering being continuing in nature is not confined only to the initial act of criminal acquisition but also extends to every process or activity connected with the proceeds including layering through multiple transactions, integration into the legitimate economy and projection of the acquired wealth as lawful,” the Court said.

Title: ED v. M/S PRAKASH INDUSTRIES LTD & other connected matter

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