Allocation Letter Constitutes Property Involved In Money Laundering: Delhi High Court Allows ED’s Pleas

The Delhi High Court held that the allocation letter constitutes property involved in money laundering under the scheme of the Prevention of Money Laundering Act, 2002 (PMLA).

The Court held thus in Appeals preferred by the Directorate of Enforcement (ED), challenging the Judgment of the Single Judge in Writ Petitions which raised substantially similar challenges.

A Division Bench of Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar observed, “… the allocation letter was one of the core essential elements to initiate the offence of money laundering, whereby it acted as a conduit to derive the proceeds of crime. Further, the allocation letter was attained through misrepresentation and suppression of material facts, which if revealed truly would have led PIL to not be in the possession of the allocation letter, amounting to criminal activity relating to scheduled offences under the PMLA. Since, the allocation letter enabled the commission of money laundering, the letter is not only relevant but also constitutes property involved in money laundering under the scheme of the Act.”

The Bench said that the coal block allocation letter, although subsequently cancelled by the Supreme Court in a case is an instrument evidencing a right or interest, namely, a right to obtain mining lease from the Government and extract coal through its utilisation.

Special Counsel/Advocate Zoheb Hossain represented the Appellant, while Senior Advocates Dayan Krishnan and Kapil Sibal represented the Respondents.

Factual Background

In the lead case, dispute between the parties arose out of an allocation of the Chotia Coal Block in favour of M/s Prakash Industries Limited (PIL). The primary allegation against PIL was that they attained the allocation, though fraudulent activities resulting in financial gains leading to proceeds of crime. The allocation of the Coal Block was made in favour of PIL in 2003. However, such allocation stood cancelled by the Supreme Court via its Judgment in W.P.(Crl) 120/2012 captioned Manohar Lal Sharma v Union of India, which declared the coal block allotments to be illegal and arbitrary.

The Supreme Court further directed the Central Bureau of Investigation (CBI) to continue with its investigation into all such allotments. Two different chargesheets were filed by CBI, on account of alleged misrepresentations by PIL in attaining such allocation, leading to multiple consequential proceedings. Being aggrieved, the PIL approached the High Court. Thereafter, CBI preferred a Special Leave Petition (SLP) before the Apex Court, assailing the Order of the High Court which was pending adjudication.

Reasoning

The High Court after hearing the contentions of the counsel, noted, “Additionally, it is apposite to note that, in 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. Therefore, it becomes essential to embrace a broader and more dynamic understanding of what constitutes ‘property’.”

The Court said that 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.

“… it is undisputed that the allocation letter was neither dormant nor kept in abeyance rather was utilised by PIL to derive substantial financial gains through coal excavation, leading to form the very foundation for the economic generation stated to be proceeds of crime by the Directorate”, it added.

The Court elucidated that the mere fact that subsequent statutory clearances are to be obtained by the allotee (PIL) does not negate the legal character of the initial allocation.

“… where the foundation of such allotment is vitiated by criminal activity, any and/or every benefit arising from it in favour of PIL, including the interest in the coal block arising therefrom, cannot be treated as legally inconsequential”, it further said.

The Court explained 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.

“… the intent of the Act is not only to punish the accused found to be guilty under the offence of money laundering, but also to deprive them of the illegal financial gains. The PMLA not only recognizes the illegal 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”, it also noted.

The Court remarked that the fallacious premise that “a negative plus a negative result in positive” cannot be invoked to defeat the legislative intent and mandate of the PMLA, since the statute focuses on the derivation of use of property obtained through a criminal activity and not on the eventual profit or loss incurred by a party.

“… 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”, it observed.

Conclusion

Moreover, the Court said that the filing of a report under Section 173 of the CrPC is one of the triggering conditions for initiating attachment under first proviso to Section 5(1) of the PMLA, but not the only one, as under the statute, other conditions may independently warrant the initiation of attachment proceedings.

“… 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.

Accordingly, the High Court allowed the Appeals and set aside the impugned Judgment.

Cause Title- Directorate of Enforcement v. M/s. Hi-Tech Mercantile India Pvt. Ltd. & Ors. (Neutral Citation: 2025:DHC:9229-DB)

Appearance:

Appellant: Special Counsel Zoheb Hossain, Panel Counsel Vivek Gurnani, Advocates Pranjal Tripathi, Kartik Sabharwal, and Sheikh Raqueeb.

Respondents: Senior Advocates Dayan Krishnan, Kapil Sibal, Advocates Ankur Chawla, Chander B. Bansal, Gurpreet Singh, Jatin S. Sethi, Bukul Jain, Kunal Aggarwal, Shivam Bansal, Yash Pandey, Shivam Tandon, Ankur Chawla, C. B. Bansal, Gurpreet Singh, Aamir Khan, and Atif Akhtar.

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