ED Empowered To Attach Property Of Equivalent Value When Original Proceeds Of Crime Obtained By Accused Is Untraceable: Delhi High Court
The Delhi High Court remarked that the primary objective of Section 5 of the PMLA is preventive and protective, in order to preserve the assets that may be subject to dissipation if not confiscated by the agency.
Justice Anil Kshetarpal, Justice Harish Vaidyanathan Shankar, Delhi High Court
The Delhi High Court held that the Enforcement Directorate (ED) is empowered to attach a property of equivalent value when the original proceeds of crime obtained by the accused is untraceable.
The Court held thus in Appeals preferred by ED against 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 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 clear nexus of such proceeds to a scheduled offence.”
The Bench explained that the definition of proceeds of crime under Section 2(1)(u) of the Prevention of Money Laundering Act, 2002 (PMLA), not only includes the property derived directly through a criminal activity related to the scheduled offence, rather it also includes any property derived indirectly by such a criminal activity.
Advocate Zoheb Hossain (Special Counsel) represented the Appellant, while Senior Advocate Dayan Krishnan represented the Respondent.
Facts of the Case
The dispute between the parties arose from the allocation of Fatehpur Coal Block in favour of M/s Prakash Industries Limited (PIL). The primary allegations against PIL were two-fold. Firstly, it was 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 (BSE) that it had already received the allocation.
Such 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. An application was submitted by PIL to the Ministry of Coal for allocation of Fatehpur Coal Block for setting up a power plant, pursuant to a newspaper advertisement. While submitting the said application, PIL allegedly misrepresented its net worth as Rs. 532 crores, whereas, as per the ED and CBI (Central Bureau of Investigation), its actual net worth was (-) Rs.144.16 crores at the relevant time.
Reasoning
The High Court in view of the above facts, said, “While it is trite law that the offence under Section 3 of the PMLA is predicated upon the existence of a scheduled offence, it is of equal importance to understand that the offence of money laundering is a distinct and independent offence in itself.”
The Court noted that even if no separate predicate offence is registered in relation to the subsequent act of utilisation of property to acquire funds through a legalised transaction, the classification of the 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”.
“This is because the proceeds nevertheless are traceable either directly or indirectly, to the original criminal activity relating to a scheduled offence. … 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”, it added.
The Court enunciated that 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”, it observed.
The Court further said that 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 and, 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 ED 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”, it held.
The Court remarked that the primary objective of Section 5 of the PMLA is preventive and protective, in order to preserve the assets that may be subject to dissipation if not confiscated by the agency.
“… it is a complete and self-contained section which distinctively lays down the conditions precedent to exercise the powers provided thereunder. The said provision nowhere makes any reference to or requirement of prior information sharing under Section 66(2) of the PMLA”, it added.
Conclusion
The Court emphasised 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.
“The provisions which are merely directory in nature do not affect the case even if the same has not been complied with or as long as consequence of its non compliance is directly mentioned under the statute. … even if it is assumed that the Directorate has defaulted in sharing information as mandated under Section 66(2) of the PMLA, it is to be taken into account that the provision nowhere provides for any specific time limit within which the information must be shared”, it also noted.
The Court, therefore, concluded that compliance of Section 66(2) of the PMLA is not a condition precedent for issuance of Provisional Attachment Order (PAO), the Directorate, is legally justified in attaching the equivalent value of properties of PIL under Section 5 of the PMLA, especially when the pre-requisites of the attachment has been satisfied.
Accordingly, the High Court allowed the Appeals and set aside the Single Judge’s Judgment.
Cause Title- Directorate of Enforcement v. M/s Prakash Industries Ltd. (Neutral Citation: 2025:DHC:9626-DB)
Appearance:
Appellant: Advocates Zoheb Hossain (Special Counsel), Vivek Gurnani (Panel Counsel), Pranjal Tripathi, Kartik Sabharwal, and Sheikh Raqueeb.
Respondent: Senior Advocate Dayan Krishnan, Advocates Ankur Chawla, Chander B. Bansal, Gurpreet Singh, Jatin S. Sethi, Bukul Jain, Kunal Aggarwal, Shivam Bansal, and Yash Pandey.
