Coal allocation cannot amount to proceeds of crime under money laundering law: Delhi HC

The FIR and the consequential charge sheet were quashed by the concerned court but after the allocation was cancelled by the Supreme Court, a second FIR was registered by the CBI in 2016 and another charge sheet was filed in 2020 alleging that the petitioner fraudulently and dishonestly obtained the coal allocation.

While the Supreme Court stayed further proceedings before the trial court, the ED initiated proceedings against the petitioner based on the second charge sheet.

The court stated that the offence of money laundering rests on the commission of a predicate offense and it cannot possibly survive or subsist once the predicate offence is found to be not established and since the first charge sheet concerning the allocation was quashed in the present case, it would have to necessarily acknowledge that no criminal activity was indulged in.

The criminal activity on which the allegation of money laundering is constructed and raised is the allocation of the coal block. As noted above, there is no allegation that any illegal monetary gains were derived or obtained as on 04 September 2003 (when the allocation was made and the offense was stated to have been committed and completed).

This coupled with the fact that the allocation itself would not represent proceeds of crime leads the court to the unescapable conclusion that the impugned proceedings are rendered patently illegal, said the court.

The court stated that it is the gains obtained from a criminal activity that is concealed or projected to be untainted that can form the subject matter of the offence under PMLA and the allocation of a coal block in itself did not give rise to any monetary gains.

An allocation of coal cannot possibly be viewed as amounting to proceeds of crime per se. That document at best enabled the holder thereof to obtain a mining lease. Viewed in that backdrop it cannot be said that the allocation of coal is property as contemplated under the Act, it asserted.

The court also clarified that the offence of money laundering being a stand-alone offense only conveys that it is to be tried separately in accordance with the procedure prescribed under PMLA.

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, the court said.

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.

In its 133-page order, the court further observed that is the date of the commission of the offense of money laundering and not the date of commission of a scheduled offense that is relevant and determinative to invoke PMLA.