ED Can Treat Coal Block Allocation Obtained By Deceit As 'Property' Involved In Money Laundering: Delhi High Court

The Delhi High Court has held that coal block allocation obtained through misrepresentation or fraud leading to proceeds of crime amounts to an offence of money laundering under the PMLA.

A division bench comprising Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar said that obtaining financial benefits in the form of profits earned from the extraction and sale of coal or through the usage of financial benefits to substitute or derive assets qualifies as proceeds of crime.

The Court overturned a 2022 ruling passed by a single judge which held that the allocation of coal cannot be viewed as proceeds of crime per se.

The single judge had quashed the agency's Provisional Attachment Order (PAO) under the PMLA against Prakash Industries Limited (PIL) and Hi-Tech Mercantile India Pvt. Ltd.

Allowing the appeals filed by ED, the division bench quashed the cancellation of the PAO and its consequential proceedings by the Single judge.

Setting aside the single judge verdict, the Bench ruled that the coal block allocation letter was an instrument evidencing a right or interest, namely, a right to obtain mining lease from the Government and extract coal through its utilisation.

It said that the allocation letter was utilised by PIL to derive substantial financial gains through coal excavation, forming the very foundation for the economic generation stated to be proceeds of crime by Enforcement Directorate.

It held that since the allocation letter enabled the commission of money laundering, it is not only relevant but also constitutes property involved in money laundering under the scheme of PMLA.

Furthermore, the Bench observed that the coal block allocation letter obtained through such criminal activity conferred valuable rights in favour of PIL which enabled it to secure mining leases from the government and subsequently undertake coal excavation.

It noted that the process led PIL to obtain financial benefits in the form of profits earned from the extraction and sale of coal or through the usage of financial benefits to substitute or derive assets, which qualifies as proceeds of crime within the meaning of Section 2(1)(u) of the PMLA.

“Subsequently, since any process or activity connected with such proceeds of crime including possession, use, concealment, layering, projection or claim as untainted, constitutes money-laundering, the aforesaid proceeds, having been possessed, used, concealed, projected such as untainted property by PIL, brings the case squarely within the scope of the offence of money laundering as defined under Section 3 of the PMLA,” the Bench said.

It also held that the Enforcement Directorate was justified in attaching the “value” of coal extracted under Section 5 of the PMLA, when the pre- requisites of attachment were satisfied.

“In view of the aforestated, the financial benefits derived by PIL post-allocation, such as coal extraction, commercial exploitation, profit generation, or any asset substitution, form part of the economic chain flowing from the alleged tainted allocation. These are squarely within the scope of the Directorate‟s jurisdiction under the PMLA. Therefore, the Directorate is legally justified in extending its actions beyond the pre-allocation phase, and the artificial cut-off date of 04.09.2003 cannot be used to curtail its statutory mandate,” the Court said.

“….the coal block allocation letter dated 04.09.2003 obtained through misrepresentation constitutes „property‟ under Section 2(1)(v) of the PMLA, whereas the illegal financial gains facilitated the generation of proceeds of crime under Section 2(1)(u) of the PMLA. Furthermore, PIL‟s continued possession and use of these proceeds established the offence under Section 3 of the PMLA. Moreover, the Directorate has satisfied the statutory pre-requisites envisaged under Section 5 of the PMLA justifying the issuance of PAO,” it concluded.

The single judge dealt with petitions concerning allocation of the Chotia coal block in favour of Prakash Industries Limited (PIL), one of the petitioners. The aforesaid allocation came to be made in its favour on 04 September 2003.

The allocation ultimately came to be cancelled in terms of the judgment of the Supreme Court in Manohar Lal Sharma v. Principal Secretary.

However, and much before that verdict came to be rendered, CBI on 07 April 2010 registered an FIR alleging misrepresentation by PIL in order to obtain the coal allocation as well as diversion of coal extracted from the said block. The Special Judge CBI taking cognizance of the chargesheet, framed charges against PIL and other accused.

The aforesaid chargesheet came to be challenged by PIL before High Court which in terms of its judgment of 05 September 2014 quashed the FIR as well as the consequential chargesheet which was submitted.

A second FIR was then registered by CBI on 02 December 2016. On conclusion of investigation, CBI proceeded to file a chargesheet numbered on 23 January 2020 alleging commission of offence under sec. 120B read with sec. 420 of the Indian Penal Code.

The allegation in the second chargesheet essentially was that PIL submitted false and forged documents in order to obtain the allocation of the coal block in question, misrepresented facts pertaining to proceedings pending before the Board for Industrial and Financial Reconstruction and thus fraudulently and dishonestly obtained the coal allocation.

Upon the competent court taking cognizance on the aforesaid chargesheet, PIL instituted Special Leave to Appeal on which the Supreme Court by an order of 06 May 2022 has stayed further proceedings before the Trial Court.

The impugned show cause notice and the provisional order of attachment were based on allegations that the allocation was utilised to extract minerals, diversion of the same for the purposes of sale and the laundering of the proceeds so earned and derived through the purchase of immovable properties.

The single judge had quashed the proceedings arising out of the order of attachment dated 01 December 2021 as well as the show cause notice dated 13 January 2022.

It had held that it cannot be said that the allocation of coal was property as contemplated under the Act.

Counsel for Appellant: Mr. Zoheb Hossain, Spl Counsel for ED with Mr. Vivek Gurnani, Panel Counsel with Mr. Pranjal Tripathi, Mr. Kartik Sabharwal and Mr. Sheikh Raqueeb, Advs

Counsel for Hi-Tech Mercantile: Mr. Dayan Krishnan, Sr. Adv. with Mr. Ankur Chawla, Mr. Chander B. Bansal, Mr. Gurpreet Singh, Mr. Jatin S. Sethi, Mr. Bukul Jain, Mr. Kunal Aggarwal, Mr. Shivam Bansal and Mr. Yash Pandey, Advs

Counsel for PIL: Mr. Kapil Sibal, Sr. Adv. with Mr. Shivam Tandon, Mr Ankur Chawla, Mr. C. B. Bansal, Mr. Gurpreet Singh, Mr. Aamir Khan and Mr. Atif Akhtar, Advs

Title: ED v. M/S. HI-TECH MERCANTILE INDIA PVT LTD & ORS. & ORS

Click here to read order