Delhi High Court : ED Can Treat Fraudulent Coal Block Allocation as ‘Property’ Generating Proceeds of Crime
Isabella Mariam
The High Court of Delhi, Division Bench of Justice Anil Kshetrapal and Justice Harish Vaidyanathan Shankar, allowed the appeals filed by the Directorate of Enforcement (ED) against the order quashing the Provisional Attachment Order (PAO) and consequential proceedings arising from the Prakash Industries coal block case. The Court held that the allocation letter obtained through misrepresentation constituted “property” under the Prevention of Money Laundering Act, 2002 (PMLA), that the illegal gains amounted to “proceeds of crime,” and that the ED had satisfied the statutory prerequisites for issuing the PAO. The Single Judge’s judgment was set aside, and the cancellation of the PAO and related proceedings was reversed.
The proceedings arose from the allocation of the Chotia Coal Block to a private company in 2003, which was later cancelled following the Supreme Court’s declaration that coal block allotments during that period were illegal. The Central Bureau of Investigation (CBI) registered two separate cases alleging that the company had secured the allocation through false and forged representations made to various government authorities, including misstatements regarding installed production capacity, financial standing, and rehabilitation status before the Board for Industrial and Financial Reconstruction.
The first investigation led to the filing of a charge sheet under provisions of the Prevention of Corruption Act and the Indian Penal Code for cheating, forgery, and criminal conspiracy, which was subsequently quashed by the High Court. Pursuant to further directions from the Supreme Court, the CBI registered a second case limited to examining the process leading up to the allocation. On the basis of this second case, the Enforcement Directorate initiated proceedings under the Prevention of Money Laundering Act, 2002 (PMLA), alleging that the coal block, obtained through fraudulent means, generated proceeds of crime through extraction and sale of coal.
The Directorate issued a Provisional Attachment Order under Section 5(1) of the PMLA, attaching assets valued at approximately ₹227 crore, asserting that profits derived from coal extraction between 2006 and 2015 represented proceeds of crime. The company challenged the attachment, contending that no monetary benefit accrued prior to the allocation date and that payments already made towards levies, duties, and mine operations exceeded any alleged gain. It further argued that the High Court lacked jurisdiction under the Supreme Court’s directions in the coal block matters. The Directorate maintained that the attachment was justified under Sections 2(1)(u), 2(1)(v), 3, and 5 of the PMLA, asserting that post-allocation activities constituted money-laundering arising from a scheduled offence.
The Division Bench stated that: “the actual question for consideration ought to have been, ‘whether the allocation letter constitutes ‘property’ within the meaning of Section 2(1)(v) of the PMLA; and if so, whether the said property was subsequently used or dealt with in a manner that enabled PIL to derive any financial gain, thereby generating ‘proceeds of crime’ as provided under Section 2(1)(u) of PMLA’.”
The Court further observed that where property or its value is intermingled, dissipated, or untraceable, the PMLA permits attachment of the equivalent value. “The statutory definition of proceeds of crime under Section 2(1)(u) of the PMLA expressly includes, ‘the value of any such property’.”
In analysing Section 5, the Court reiterated the preconditions of a lawful provisional attachment: nexus with a scheduled offence, demonstration of proceeds of crime, participation under Section 3, and recorded reasons to believe, followed by statutory steps including complaint before the Adjudicating Authority. The Bench recorded that, in this case, the Directorate’s evaluation of the value corresponding to coal excavated reflected the asserted financial gain derived by PIL.
On the contention that business losses or expenditure could negate proceeds of crime, the Court recorded that such an approach was “wholly misplaced” within money-laundering jurisprudence, as the statute focuses on property derived from criminal activity rather than eventual profit or loss. It also noted that the source of funds for the expenditure was unexplained and could not be presumed untainted. In the Court’s phrasing, “the fallacious premise that ‘a negative plus a negative result in positive’ cannot be invoked to defeat the legislative intent and mandate of the PMLA.”
Addressing maintainability, the Bench held that the proceedings—beginning from the issuance of the PAO and culminating in the show cause notice and complaint—were “intrinsically linked” through a chain of causation emanating from the foundational executive act of issuing the PAO. Challenges to such executive action, the Court stated, squarely fall within Article 226 of the Constitution. It recorded that PIL’s writ petition, including its amended reliefs, was in substance a challenge to executive action under statutory powers, attracting the High Court’s original writ jurisdiction.
The Court clarified that once the PAO is recognised as the root order, if that order is found legally sustainable, consequential proceedings would follow their statutory course before the Adjudicating Authority. The Bench thus disagreed with the Single Judge’s approach that had treated the case within a narrower supervisory lens and had quashed the proceedings on an incorrect legal foundation.
It recorded: “the present Appeals are allowed. the Impugned Judgment passed by the learned Single Judge, which is under challenge herein, is hereby set aside.” It further added: “Resultantly, the cancellation of the PAO and its consequential proceedings by the learned Single judge are also set aside.”
The Court also recorded that its discussion in the appellate judgment was only for the adjudication of the lis in the appeals and was not to be treated as a final expression on the submissions of the parties before other fora. It indicated that future adjudication would proceed in accordance with law, without being foreclosed by the appellate Court’s discussion.
Advocates Representing the Parties
For the Appellant (Directorate of Enforcement): Mr. Zoheb Hossain, Special Counsel for ED with Mr. Vivek Gurnani, Panel Counsel with Mr. Pranjal Tripathi, Mr. Kartik Sabharwal, and Mr. Sheikh Raqueeb, Advocates.
For the Respondents (PIL): Mr. Kapil Sibal, Senior Advocate with Mr. Shivam Tandon, Mr. Ankur Chawla, Mr. C. B. Bansal, Mr. Gurpreet Singh, Mr. Aamir Khan, and Mr. Atif Akhtar, Advocates.
Case Title: Directorate of Enforcement v. M/s Prakash Industries Ltd. & Anr. (with connected matter LPA 588/2022)
Neutral Citation: 2025: DHC:9229-DB
Case Number: LPA 590/2022
Bench: Justice Anil Kshetrapal; Justice Harish Vaidyanathan Shankar
