2024 (12) TMI 292 - AT - Money Laundering

Money Laundering - proceeds of crime - allocation of the coal block to the appellant company constituted proceeds of crime under the Prevention of Money Laundering Act, 2002 (PMLA) - HELD THAT - It is undisputed that the Appellant Company along with others has been convicted for the scheduled offence by the Ld. Special Judge (PC Act) (CBI) Rouse Avenue, New Delhi. The reasons given in the judgment dated 13.11.2019 has categorically brought out that the letter of allocation of coal block was issued because the Appellant Company and its Directors had misrepresented and exaggerated their financial status as well as their progress already made for setting up the Sponge Iron Plant in Lohardaga. The additional investment including the purchase of 50% shares by Shri R.S. Rungta and his family members happened after the issuance of letter of allotment of coal block. Shri Rungta has admitted this fact in his statement u/s 50 of PMLA - there is no predicate offence for which any investigation has been carried out about the misrepresentation or cheating or deceiving to the investor either in the chargesheet already decided or in a separate chargesheet. The conviction in the trial for the predicate offence for the reason that the letter of allocation of Coal Block was obtained through misrepresentation, with dishonest and fraudulent intentions as held in the judgment dated 13.11.2019 of the Court of Ld. Special Judge, (PC Act) (CBI), Rouse Avenue, New Delhi has not held anyone guilty for attracting additional investments through such misrepresentation, dishonesty and fraud. Since the letter of allocation of Coal Block has been held as conferment of valuable right, it cannot by itself be regarded as proceed of crime - the indelible connect between the scheduled offence cannot possibly be construed, unless the chargesheet for scheduled offence and the judgement thereupon would have incorporated such link. In the absence of such finding in the course of investigation of the predicate offence, the Respondent Directorate could not have either assumed existence of such link or even undertake to investigate such link, being only empowered to conduct investigations of the offence of money laundering and not that of the scheduled offence. In the absence of any predicate offence having been registered and investigated with respect to the flow of investment from outsider investors into the Appellant Company, the attempt by the Respondent Directorate to make such flow of funds as proceeds of crime fails. The Appeal is therefore allowed and pending applications are accordingly disposed of.

Summary

Issues Involved:

1. Whether the allocation of the coal block to the appellant company constituted proceeds of crime under the Prevention of Money Laundering Act, 2002 (PMLA).
2. Whether the investments made by an outsider investor in the appellant company can be considered as proceeds of crime.
3. The validity of the Provisional Attachment Order issued under PMLA.

Detailed Analysis:

1. Allocation of Coal Block as Proceeds of Crime:

The central issue was whether the allocation of a coal block to the appellant company constituted proceeds of crime under PMLA. The investigation revealed that the appellant company obtained the coal block through misrepresentation and fraudulent claims regarding their financial status and project preparedness. The Special Judge (PC Act) (CBI) concluded that the accused, including the appellant company, were guilty of criminal conspiracy and cheating under Sections 120B and 420 of IPC, affirming that the allocation was obtained through deceitful means. However, the tribunal noted that the allocation of a coal block, by itself, does not generate proceeds of crime unless there is revenue generation through mining activities. The allocation was deemed a valuable right but not proceeds of crime, as no coal was mined due to the subsequent cancellation of the allocation.

2. Investments by Outsider Investor:

The tribunal examined whether the investments made by Shri R.S. Rungta and his family in the appellant company could be classified as proceeds of crime. The investments occurred after the coal block allocation, and the tribunal found no evidence of misrepresentation or deceit towards these investors. The investments were made at face value, and there was no enhancement in share price or evidence of allurements. The tribunal emphasized that without a predicate offence involving misrepresentation to investors, such investments could not be deemed proceeds of crime. The tribunal referenced judgments which clarified that proceeds of crime must result from criminal activity related to a scheduled offence, and mere allocation without subsequent illegal gains does not meet this criterion.

3. Validity of Provisional Attachment Order:

The Provisional Attachment Order issued by the Respondent Directorate under PMLA provisionally attached properties valued at Rs.1,03,62,266/-, considering them involved in money laundering. The tribunal scrutinized this order in the context of the findings regarding proceeds of crime. It concluded that since the allocation of the coal block did not constitute proceeds of crime and there was no predicate offence concerning the investments, the attachment order lacked a valid basis. The tribunal highlighted that the Directorate's role is limited to investigating money laundering offences, not the predicate offences themselves, and any assumption of proceeds of crime without a registered predicate offence is untenable.

Conclusion:

The tribunal allowed the appeal, ruling that the allocation of the coal block and the subsequent investments did not constitute proceeds of crime under PMLA. The Provisional Attachment Order was invalidated due to the absence of a predicate offence linking the investments to criminal activity. The tribunal's decision underscored the necessity of a direct connection between alleged proceeds of crime and a scheduled offence, as well as the limitations on the investigative powers of the Directorate under PMLA.