Delhi High Court Upholds Directorate of Enforcement's Provisional Attachment Order Against M/s Prakash Industries Ltd.

Court rules Section 66(2) compliance not a prerequisite for Provisional Attachment Order under PMLA.

In a significant judgment, the Delhi High Court has upheld the Directorate of Enforcement's (ED) Provisional Attachment Order (PAO) against M/s Prakash Industries Ltd (PIL), reinforcing the authority's power under the Prevention of Money Laundering Act, 2002 (PMLA). The case, presided over by Justices Anil Kshetarpal and Harish Vaidyanathan Shankar, revolved around the alleged misrepresentation by PIL in securing the allocation of a coal block, which reportedly led to an artificial inflation in share prices and subsequent proceeds of crime.

The court ruled that the PAO is valid even if the ED did not comply with Section 66(2) of the PMLA, which requires sharing information with predicate agencies. The judgment emphasized that such compliance is not a condition precedent for the issuance of a PAO. The court noted that the PMLA provides a comprehensive mechanism for addressing money laundering and that the directorate's actions are justified when original proceeds of crime are untraceable or dissipated.

The dispute traces back to allegations that PIL fraudulently obtained the allocation of the Fatehpur Coal Block and misrepresented its net worth to the Bombay Stock Exchange, resulting in a substantial rise in its share value. The court found that such misrepresentations and the subsequent financial transactions constituted proceeds of crime under PMLA.

The court further outlined that the allocation of a coal block qualifies as property under Section 2(1)(v) of the PMLA, and proceeds derived from such allocation can be attached even if they are obtained indirectly through misrepresentation. The judgment also clarified that the offence of money laundering is a continuing offence, not confined to the initial act of misrepresentation but extending to all connected transactions.

The court dismissed PIL's arguments regarding the maintainability of the appeal and the need for compliance with Section 66(2), affirming that the PAO is a preventive measure aimed at preserving assets that might otherwise be dissipated. This ruling underscores the court's commitment to supporting robust enforcement actions against money laundering activities.

Bottom Line:

Provisional Attachment Order (PAO) issued under Section 5 of the Prevention of Money Laundering Act, 2002 (PMLA) is valid even if Section 66(2) of PMLA regarding sharing information with predicate agencies is not complied with, as compliance is not a condition precedent for issuance of PAO.

Statutory provision(s):  

• Prevention of Money Laundering Act, 2002: Sections 2(1)(u), 2(1)(v), 3, 5(1), 66(2);  
• Indian Penal Code, 1860: Sections 120B, 420;  
• Code of Criminal Procedure, 1973: Section 173;  
• Constitution of India: Articles 136, 142, 226.

Directorate Of Enforcement v. M/s Prakash Industries Ltd, (Delhi)(DB) : Law Finder Doc Id # 2803495