Proceedings Under PMLA, 2002 Unsustainable If No Scheduled Offence Made Out: Delhi HC

The Delhi High Court held that a case under Prevention of Money Laundering Act, 2002 cannot proceed without evidence that establishes commission of a predicate offence. Justice Yashwant Verma, on Tuesday, while allowing the writ petition filed by Prakash Industries Limited (PIL), quashed the order of provisional attachment of property.

Coal mining lease was granted by the Ministry of Coal in favour of the petitioner in the year 2003. An FIR was registered against the petitioner company which alleged misrepresentation with respect to its captive activity, submission of false and incorrect information in order to obtain allotment of the coal block and diversion of coal extracted from that block in the open market.

In terms of the FIR and chargesheet, PIL was alleged to have diverted 2,27,000 tons of coal in the open market and thus earned illegal profits amounting to Rs. 22.7 crores. The allocation was ultimately cancelled as per the Supreme Court judgment in Manohar Lal Sharma v. Principal Secretary (2014) 9 SCC 614. It was further alleged that based on the revenues generated as a result of the said criminal activity, various properties were purchased by PIL acting through its related and sister concerns.

The order of provisional attachment passed under the PMLA was specifically under challenge in the petition. 

Senior Advocate Kapil Sibal, appeared for the petitioner and questioned the jurisdiction of the proceedings under the PMLA. He contended that the allocation of coal could not be construed as being proceeds of crime since it clearly does not represent property which may be said to be derived or obtained as a result of criminal activity relating to a scheduled offence. 

Sibal contended that, “the allocation of coal in itself cannot possibly be understood as being proceeds of crime since it only conferred upon the petitioner the right to apply for the grant of a mining lease.  The entire allegations levelled against PIL is of having obtained that allocation by way of misrepresentation and fraudulent conduct.” “It was only monies and profits that may have been generated by the utilisation of that allocation which could have possibly fallen within the scope of the expression “proceeds of crime” as defined in Section 2(1)(u) of the Act,” Sibal added. 

It was vehemently argued that the allocation of coal was made by a public act of a competent authority in the Union Government and existed as such till it was ultimately quashed and set aside in Manohar Lal Sharma. 

According to Sibal, both on account of the fact that the allocation cannot amount to proceeds of crime and secondly since it would not fall within Section 3 of the Act, the impugned proceedings were rendered wholly without jurisdiction and were liable to be quashed.

Additional Solicitor General SV Raju, while arguing for the Enforcement Directorate, submitted that merely because the predicate offence may have been committed prior to the enforcement of the Act, that would not invalidate the proceedings initiated by the agency. 

The Court, after having considered the contentions of the counsels, noted, “…once it is found that a criminal offence does not stand evidenced, the question of any property being derived or obtained therefrom or its confiscation or attachment would not arise at all and in any case, proceedings if initiated under the Act would be wholly without jurisdiction or authority.” 

The Court further observed, “the predicate offense does not merely represent the trigger for a charge of money laundering being raised but constitutes the very foundation on which that charge is laid. The entire edifice of a charge of money laundering is raised on an allegation of a predicate offense having been committed, proceeds of crime generated from such activity and a projection of the tainted property as untainted.”

The Court while quashing the order of provisional attachment of property against the petitioner, held, “however, once it is found on merits that the accused had not indulged in any criminal activity, the property cannot legally be treated as proceeds of crime or be viewed as property derived or obtained from criminal activity.”