EMTA Coal Limited & Ors. v. The Deputy Director Directorate of Enforcement

13. Sh. VK. Sharma, Ld. ALA has also acknowledged the handicaps during investigation and has submitted that the closure report may be accepted. He also pointed out that there were no guidelines applicable to allocation of coal blocks through Govt. Dispensation Route (GDR) when the allocations were made.

14. The complainant of this case Sh. Himanshu Bahuguna, Dy. SP, EO-II, CBI was also called by notice. His statement has also been recorded and he has left it to the court to decide it on merits of the case.

15. The investigation has been concluded on the basis of the available records/documents. Various important documents could not be obtained by the Investigating Officer despite his best efforts. The documents are missing. This has been a genuine handicap in the investigation.

16. From the available record/documents, it cannot be ascertained that there was any criminality in allocation of coal blocks and/or their mining. Further, it cannot be ascertained that there was any foul play in formation of JV company namely BECML. As already mentioned in the beginning, this case pertains to allocation of coal blocks through GDR some of which were allotted way back in 1995. There appears to be no chance of getting the relevant documents. The recording of statements of various officials has also not yielded any results.

17. The allocation of coal blocks to PSUs of WB Govt. by MoC, Govt. India has already been cancelled by the Hon'ble Supreme Court vide its judgment dt. 24.09.2014 [(2014) 9 SCC 614]. The manner of processing the request of PSUs of WB Govt. is not ascertainable as relevant documents are not available. From the documents that are available, responsibility for any offence for allocating the coal blocks cannot be fixed. Further, the irregularities regarding aspect of mining the coal mines or price of the coal is somewhat secondary issue. It does not help in solving the main issue i.e. criminality in allocation of coal blocks. Even otherwise, documents qua that aspect are also not completely available. As far as observations regarding selection of JV partner in the CAG Report are concerned, it has been rightly noted by the IO that the guidelines/circulars/rules taken note of by CAG were not applicable during the relevant period as the same were issued much later and thus no fault can be found in the said exercise.

18. This court concurs with the conclusion of the Investigating Officer.

19. In view of the above discussion, the closure report is hereby accepted. File be consigned to Record Room.”

8. In the meantime, the Enforcement Directorate, in view of the FIR which was filed and the ECIRs, has passed the impugned provisional attachment orders dated 14th February, 2022 and 20th June, 2022 under section 5 of the PMLA attaching various properties and assets belonging to the Petitioners. The said provisional attachment orders are under challenge in the present cases.

9. At the time when W.P.(C) 3821/2021 was filed, the CBI having filed the closure report, the proceedings pursuant to the attachment order dated 14th February, 2022 were stayed by this Court on 7th March, 2022. The said order reads as under: “CM APPL. 11326/2022 (for exemption) Allowed, subject to all just exceptions. The application shall stand disposed of. W.P.(C) 3821/2022 & CM APPL. 11325/2022 Notice shall issue to the respondent. Since Mr. Mahajan, learned CGSC represents the said respondent, let a counter affidavit be filed on this writ petition within a period of four weeks. The Court takes note of the submission of learned counsel who assails the Provisional Order of Attachment and asserts that the said order fails to record any satisfaction with regard to the likelihood of the alleged tainted assets being dissipated. Additionally, it is brought to the notice of the Court that the criminal investigation which was initiated pursuant to the FIR lodged by the CBI has resulted in that investigating agency itself submitting a closure report. The matter requires consideration. Till the next date of listing, there shall be stay of further proceedings pursuant to the impugned O.A of 14 February 2022 bearing no. 01/KLZ0-I/2022. List again on 18.04.2022.”

10. In view of the stay granted in W.P.(C) 3821/2021, the Court vide order dated 29th August, 2022, also stayed further proceedings under section 8 of the PMLA in W.P.(C) 12437/2022. The said order reads as under: “W.P.(C) 3821/2022 and CM No. 37473/2022 (direction) and W.P.(C) 12437/2022, CM NO. 37384/2022 (stay) Learned counsel representing the Enforcement Directorate prays for and is granted time to file a supplementary counter affidavit bearing in mind the fresh disclosures that have been made. Additionally, a counter affidavit may be filed on or before the next date fixed in connected W.P.(C) 12437/2022. The Court takes note of the submission of Mr. Bhandari, learned counsel appearing for the petitioner who contends that once the closure report has come to be accepted by the competent court, further proceedings under the Prevention of Money Laundering Act 2002 [2002 Act] would not sustain bearing in mind the decision rendered by this Court in Prakash Industries Limited & Anr. vs. Directorate of Enforcement [2022 SCC OnLine Del 2087] as well as by three learned Judges of the Supreme Court in Vijay Madan Lal Chaudhary & Ors. vs. Union of India & Ors. [2022 SCC OnLine SC 929]. The Court notes that the petitioner has already been accorded interim protection in W.P.(C) 3821/2022. Matter requires consideration. For the reasons aforenoted, there shall be stay of further proceedings under Section 8 of the 2002 Act pursuant to the impugned O.C. No. 1772/2022 dated 14 July 2022 in W.P.(C) 12437/2022. List on 06.12.2022. The date of 23.01.2023 shall stand cancelled.”

11. In W.P.(C) 14530/2022, a statement was made by ED on 18th October, 2022 that it has no objection to the Petitioner being granted the permission to operate the bank account which formed the subject matter of the provisional attachment orders dated 14th February, 2022, and 20th June, 2022, subject to the condition that they shall maintain a balance at all time which was standing on the date of freezing.

12. The submission today on behalf of the Petitioners is that in view of the recent decisions of the Supreme Court and this Court, the provisional attachment orders in question would no longer survive as the Petitioners have been discharged in the scheduled/ predicate offence. It is submitted by ld. Counsels that a closure report filed by the CBI has been accepted by the Trial Court in respect of the predicate offence and no criminal charges are now pending against the Petitioners. Hence, the Petitioners pray for quashing of provisional attachment orders impugned before the Court.

13. To substantiate their arguments Mr. Aggarwal, ld. Senior Counsel and Mr. Bhandari, ld. Counsels appearing for the Petitioners, have heavily relied upon the following decisions: ● Vijay Madanlal Choudhary v. Union of India & Ors., 2022 SCC OnLine SC 929 ● Prakash Industries v. Directorate of Enforcement, 2022 SCC OnLine Del 2087

14. It is submitted on the strength of the above two decisions that once the scheduled offence itself has come to an end resulting in discharge or acquittal and no proceedings are pending against the Petitioners, the attachment orders cannot continue in view of the fact that Section 3 of the PMLA contemplates that a predicate offence is a necessary precondition for any assets to be considered as ‘proceeds of crime’. Various paragraphs of Vijay Madanlal Choudhary (supra) are placed before this Court in support of this submission. It is thereafter submitted that post the judgment in Vijay Madanlal Choudhary (supra), the Supreme Court has, accepted this proposition in – i. Parvathi Kollur v. Enforcement Directorate [Criminal Appeal NO. 1254/2022, decided on 16th August, 2022], ii. Adjudicating Authority v. Shri Ajay Kumar Gupta & Ors. [Criminal Appeal Nos. 391-392/2018, decided on 2nd December, 2022], iii. Directorate of Enforcement v. M/s Obulapuram Mining Company Pvt. Ltd [Criminal Appeal No.1269/2017, decided on 2nd December, 2022]. The ratio of Vijay Madanlal Choudhary (supra) has been followed in the abovementioned cases and the Supreme Court has quashed the ECIRs in the respective matters.

15. It is the further submission on behalf of the Petitioners that the reasons given in the order accepting the closure report would have no bearing on whether the attachment can continue or not. The attachment cannot continue indefinitely and since the Trial Court has already accepted the closure report and has closed the criminal complaints against the Petitioners in the predicate offence, the impugned attachment orders deserve to be quashed.

16. On the other hand, Mr. Sharma, ld. Counsel appearing for the Enforcement Directorate relies upon paragraphs 281, 290 and 295 of the Vijay Madanlal Choudhary (supra) judgment to argue that irrespective of whether the predicate offence exists or not, unless and until the Trial Court comes to a conclusion that the assets are not proceeds of crime, the attachment orders can continue and the ED can in fact file an independent complaint in such a case. On a query from the Court as to whether there is even a single case where a separate complaint has been registered under the PMLA by the ED without a predicate offence having existed, the ld. Counsel submits that this could be the first case.

17. It is further submitted by Mr. Sharma, ld. Counsel that the Trial Court while passing the order accepting the closure report has not arrived at a conclusion that there was no criminality involved in the conduct of the Petitioners and hence the Court ought not to quash the attachment orders.

18. This Court has heard ld. Sr. Counsel, ld. Counsels for the parties and considered the matters. In Vijay Madanlal Choudhary (supra), the Supreme Court has in categorical terms held that for the existence of ‘proceeds of crime’ under Section 2(1)(u) of the PMLA, the existence of a criminal complaint pending enquiry and/or trial would be necessary. Further, if the person in question has been finally discharged or acquitted of the scheduled/predicate offence, there can be no offence of money laundering against the said person. The relevant paragraphs of the judgment in Vijay Madanlal Choudhary (supra) are set out below:

295. As aforesaid, in this backdrop the amendment Act 2 of 2013 came into being. Considering the purport of the amended provisions and the experience of implementing/enforcement agencies, further changes became necessary to strengthen the mechanism regarding prevention of money-laundering. It is not right in assuming that the attachment of property (provisional) under the second proviso, as amended, has no link with the scheduled offence. Inasmuch as Section 5(1) envisages that such an action can be initiated only on the basis of material in possession of the authorised officer indicative of any person being in possession of proceeds of crime. The precondition for being proceeds of crime is that the property has been derived or obtained, directly or indirectly, by any person as a result of criminal activity relating to a scheduled offence. The sweep of Section 5(1) is not limited to the accused named in the criminal activity relating to a scheduled offence. It would apply to any person (not necessarily being accused in the scheduled offence), if he is involved in any process or activity connected with the proceeds of crime. Such a person besides facing the consequence of provisional attachment order, may end up in being named as accused in the complaint to be filed by the authorised officer concerning offence under Section 3 of the 2002 Act.

300. The procedural safeguards provided in respect of provisional attachment are effective measures to protect the interest of the person concerned who is being proceeded with under the 2002 Act, in the following manner as rightly indicated by the Union of India: xiii. However, under Section 8(6) if the Special Court on the conclusion of the trial finds that no offence of money-laundering has taken place or the property is not involved in money-laundering it will release the property which has been attached to the person entitled to receive it.

307. It is unfathomable as to how the action of confiscation can be resorted to in respect of property in the event of his acquittal or discharge in connection with the scheduled offence. Resultantly, we would sum up by observing that the provision in the form of Section 8 (4) can be resorted to only by way of an exception and not as a rule. The analogy drawn by the Union of India on the basis of decisions of this Court in Divisional Forest Officer v. G.V. Sudhakar Rao, Biswanath Bhattacharya, Yogendra Kumar Jaiswal v. State of Bihar, will be of no avail in the context of the scheme of attachment, confiscation and vesting of proceeds of crime in the Central Government provided for in the 2002 Act.

467. In light of the above analysis, we now proceed to summarise out conclusion on seminal points in issue in the following terms:

(d) The offence under Section 3 of the 2002 Act is dependent on illegal gain of property as a result of criminal activity relating to a scheduled offence. It is concerning the process or activity connected with such property, which constitutes the offence of money-laundering. The Authorities under the 2002 Act cannot prosecute any person on notional basis or on the assumption that a scheduled offence has been committed, unless it is so registered with the jurisdictional police and/or pending enquiry/trial including by way of criminal complaint before the competent forum. If the person is finally discharged/acquitted of the scheduled offence or the criminal case against him is quashed by the Court of competent jurisdiction, there can be no offence of moneylaundering against him or any one claiming such property being the property linked to stated scheduled offence through him.”

19. The judgment in Prakash Industries v. Directorate of Enforcement (supra) given by a ld. Single Judge of this Court, passed prior to the judgment of the Supreme Court in Vijay Madanlal Chaudhary (supra), takes a similar view that offence of money laundering cannot be a standalone offence. The relevant portion of the said judgment reads as under:

19. It necessarily follows that the attachment of a property is liable to be vacated if the existence of a scheduled offence is negated. Clearly, attachment of proceeds of crime cannot continue if the alleged scheduled offence is not established after trial. Given the scheme of the PMLA, attachment of property (proceeds of crime) must be lifted if it is found that the scheduled offence, on the basis of which attachment was effected, does not exist. In absence of a scheduled offence, the question of existence of any proceeds thereof, do not arise.”

20. Subsequent to the judgment of the Supreme Court in Vijay Madanlal Choudhary (supra), the ld. Division Bench of this Court, in Harish Fabiani and Ors. v. Enforcement of Directorate and Ors., 2022 SCC OnLine Del 3121 has also taken a similar view. The relevant portion of the said judgment is set out below:

21. The order of the Supreme Court in Parvathi Kollur (Supra) sought to be relied upon by the Petitioner is also relevant wherein the Court in no ambiguous terms has reiterated that closure of the proceedings under the PMLA is the natural consequence of the acquittal/discharge in the predicate offence. The relevant portion of the said judgment reads as under: “The result of the discussion aforesaid is that the view as taken by the Trial Court in this matter had been a justified view of the matter and the High Court was not right in setting aside the discharge order despite the fact that the accused No. 1 had already been acquitted in relation to the scheduled offence and the present appellants were not accused of any scheduled offence. In view of the above, this appeal succeeds and is allowed. The impugned judgment and order dated 17.12.2020 is set aside and the order dated 04.01.2019 as passed by the Trial Court, allowing discharge application of the appellants, is restored”

22. A perusal of the orders passed in Parvathi Kollur (supra) as also in the other three judgments referred above leaves no matter of doubt in the mind of the Court that if there is an acquittal/ discharge or a closure report has been filed in the predicate offence, the ECIR would not stand and the same would be liable to be quashed. For example, in Adjudicating Authority v. Shri Ajay Kumar Gupta & Ors. (supra), there was acquittal in the predicate offence. In view of the said fact, the Supreme Court was of the view that the appeal filed by the Adjudicating Authority (PMLA) would not survive. The said order reads as under: “Issue notice which is accepted by learned counsel for the respondent. Learned Solicitor General fairly states that since the proceedings before this Court arise from an order of attachment and there is acquittal in respect of predicate offence, the proceedings really would not survive. In view of the aforesaid, the appeals filed by the Adjudicating Authority (PMLA) do not survive and are accordingly disposed of. The trial Court record be sent back to the trial Court.”

23. Similarly, in Directorate of Enforcement v. M/s Obulapuram Mining Company Pvt. Ltd. (supra), closure report had been accepted by the Trial Court qua the predicate offence. The Supreme Court was again of the view that proceedings under PMLA will not survive and the Court proceeded to quash the ECIR. The said order reads as under: “Issue notice which is accepted by the learned counsel for the State. Learned Solicitor General fairly states that since there is a closure report in respect of the predicate offence which has been accepted, the present proceeding will not survive and consequently the ECIR No. CEZO/01/2017 stands quashed. The application along with the Special Leave Petition stand disposed of.”

24. In the facts of the present case, the Trial Court, in the complaint case which was pending before it, has clearly come to a conclusion that the closure report deserves to be accepted and no criminality is ascertainable as the documents in respect thereof were not available.

25. In view of the settled legal position in Vijay Madanlal Choudhary (supra) and the subsequent decisions and orders thereafter, the impugned attachment orders dated 14th February, 2022 and 20th June, 2022 as also the ECIRs are quashed.

26. All the petitions are allowed in these terms. All pending applications are also disposed of.

27. No orders as to cost.

PRATHIBA M. SINGH JUDGE JANUARY 10, 2023/Rahul/SK (corrected & released on 16th January, 2023)