Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2025 Supreme(Online)(ATFP) 13040

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
Balesh Kumar, MEMBER, Rajesh Malhotra, MEMBER
The Deputy Director Directorate of Enforcement Jaipur v. M/s Kamal Sponge Steel & Power Ltd. & Ors.
FPA-PMLA-3266/JP/2019

Advocates:
For the Appellants/Petitioners: N K Matta, Aditya Raj Sharma
For the Respondents: Mayank Tripathi

Share application money and premium obtained as a result of criminal activity relating to a scheduled offence (coal block allocation by cheating) constitute proceeds of crime under PMLA, irrespective of whether shares are allotted or funds are used lawfully.

Headnote:(A) Prevention of Money Laundering Act, 2002 - Sections 2(1)(u), 2(1)(v), 3, 5(1), 8(1) - Indian Penal Code, 1860 - Sections 420, 120B - Prevention of Corruption Act, 1988 - Sections 13(2) read with 13(1)(d) - Proceeds of crime - Definition and scope - Property derived directly or indirectly from criminal activity relating to a scheduled offence - Share application money and premium obtained after coal block allocation obtained by cheating - Whether such funds constitute proceeds of crime - Held, yes, even if shares not allotted or funds used for lawful purposes, as they are inextricably linked to the tainted allocation letter. (Paras 9-16)

(B) Money laundering - Continuing offence - Offence under Section 3 PMLA - Process or activity connected with proceeds of crime, including layering and projection - Even legal transactions rooted in misrepresentation attract liability. (Para 11)

(C) Property under PMLA - Section 2(1)(v) - Includes intangible assets and rights - Letter of allocation of coal block is property, conferring valuable right, irrespective of actual mining. (Paras 9-10)

Facts of the case:
The Deputy Director, Enforcement Directorate, Jaipur appealed against the order dated 30.08.2019 of the Adjudicating Authority under PMLA, which refused to confirm the Provisional Attachment Order (PAO) No. 03/2019. The PAO had attached properties valued at Rs.36,85,00,000/- (movable and immovable) as proceeds of crime, being share application money and premium received by the respondent company (KSSPL) from eight sister concerns. The scheduled offence of cheating under Section 420 IPC read with conspiracy under Section 120B IPC and corruption under PC Act was proved against the company by the Special Judge (CBI), Patiala House, vide order dated 19.05.2017, relating to misrepresentation in obtaining allocation of Thesgora-B/Rudrapuri Coal Block. The Adjudicating Authority found no nexus between the scheduled offence and the attached property because there was no investor complaint and the funds were received from sister concerns. The Appellate Tribunal set aside the impugned order.

Findings of Court:
The letter of allocation of coal block dated 21.11.2008 constitutes “property” under Section 2(1)(v) PMLA and is tainted as it was obtained through cheating and conspiracy, thus falling within proceeds of crime under Section 2(1)(u). The share application money and premium, though received partly before the allocation letter, were raised on the strength of the promised coal block and are directly or indirectly derived from the criminal activity relating to the scheduled offence. The fact that shares were not allotted or that the funds were later reclassified as advances for supplies (never made) does not erase the nature of proceeds of crime. The Explanation to Section 2(1)(u) includes property derived indirectly from any criminal activity relatable to the scheduled offence, making the funds laundered through layering. The Adjudicating Authority erred in ignoring the nexus. (Paras 9-16)

Issues: (i) Whether the allocation letter of a coal block obtained by cheating constitutes “property” under PMLA and its proceeds are proceeds of crime? (ii) Whether share application money and premium received from sister concerns in connection with the coal block allocation are proceeds of crime, even if no investor complaint exists or shares are not allotted? (iii) Whether the temporal sequence (some funds received before allocation) excludes them from being proceeds of crime?

Ratio Decidendi: The definition of “proceeds of crime” under Section 2(1)(u) PMLA is expansive and includes property derived directly or indirectly as a result of any criminal activity relatable to a scheduled offence. Once a scheduled offence (cheating in coal block allocation) is proved, any economic gain - including share capital raised on the back of that allocation - becomes proceeds of crime, regardless of its subsequent transformation or lawful deployment. The allocation letter itself is tainted property, and funds mobilized using that letter are inextricably linked to the offence. The absence of a separate complaint or the fact that shares were not issued does not break the nexus.

Result: Appeal allowed. Impugned order of the Adjudicating Authority dated 30.08.2019 set aside. The provisional attachment order No. 03/2019 dated 11.03.2019 is confirmed. All pending applications disposed of. (Para 17)

FINAL ORDER

11.12.2025

This Order disposes of the Appeal No. FPA-PMLA-3266/JP/2019 filed by The Deputy Director, Directorate of Enforcement, Jaipur, against the Order dated 30.08.2019 (Impugned Order) passed by the Ld. Adjudicating Authority (AA) under the Prevention of Money Laundering Act, 2002 (PMLA) in the Original Complaint No. 1113/2019 (OC). The Provisional Attachment Order bearing No. 03/2019 dated 11.03.2019 (PAO) with respect to the property totally valued at Rs.36,85,00,000/- was not confirmed vide the Impugned Order.

2. Ld. Counsel for the Appellant stated that the Ld. Special Judge (CBI), Patiala House Court, New Delhi vide its Order dated 19.05.2017 has held that the offence of cheating under Section 420 of Indian Penal Code (IPC) read with that of conspiracy under Section 120-B IPC stands proved beyond doubt against the accused Kamal Sponge Steel and Power Ltd. (KSSPL), the Respondent herein and other co-accused. Ld. Counsel stated that the Respondent Company had submitted its application on 09.01.2017 for allocation of Thesgora-B/Rudhrapuri Coal Block in response to the advertisement dated 13.11.2006 published by the Ministry of Coal, Government of India (MoC). Ld. Special Judge made the finding that the Respondents falsely stated about the net worth of the Company in the Application submitted to the MoC. Further the Respondents had made a false statement with respect to its annual turnover for the two financial years 2004-05 and 2005-06. Ld. Counsel further stated that, as a result of criminal activity related to scheduled offences M/s KSSPL gained pecuniary undue benefit of Rs. 32,17,50,000/- as share application money and share premium, which is Proceeds of Crime (PoC) as defined under Section 2 (1)(u) of the PMLA, 2002 and it was projected as untainted. Therefore, movable assets of Rs. 2,26,41,974/- lying in bank accounts/FDR and immovable assets of Rs. 29,91,08,026/- were attached provisionally treating these as PoC or ‘value thereof’ as defined under Section 2 (1)(u) of the PMLA, vide PAO No. 09/2017 dated 27.09.2017. The Order dated 22.03.2018 passed by then Ld. AA under the PMLA in the Original Complaint No. 833/2017 confirmed the PAO No. 09/2017.

3. Ld. Counsel for the Appellant further argued that the Respondents did not allot shares for an amount of Rs. 36,62,41,261/-. The said amount was received from their sister concerns as Share Application money and premium, but was subsequently claimed by the Respondent as advance against supplies of products of M/s KSSPL. No supply of any of the product was made. The Ld. AA in the present OC No. 1113/2019 observed that no FIR or Complaint had been made by any investor of the said amount. He further observed that thus there was no nexus between the activity of the Scheduled offence and the attached property. Ld. AA therefore dismissed the OC and did not confirm the PAO. Ld. Counsel contended that the Ld. AA had drawn a contradictory inference since the Show Cause Notice (SCN) was issued under Section 8 (1) of PMLA, because there were reasons to believe that the Respondents had prima facie committed the offence of money laundering and were in possession of PoC.

4. Ld. Counsel for the Appellant stated that vide Order dated 29.04.2024 the Ld. Special Judge (Coal Block Cases)-02, Rouse Avenue District Courts, New Delhi while finding that prima facie case is made out for framing charge against the Respondent Company (KSSPL) & Ors. has observed the following:

“53...A-1 is the company M/s KSSPL. The coal block was obtained in its name. Share capital of this company was issued and subscribed to by the investors.

54... As already mentioned, shares were issued on face value of Rs. 100/- and premium of Rs. 900/-. This is huge amount. A-1 company was able to generate Rs. 86.46 Crores therefrom.

57... Why the fresh equity shares were issued? The answer is simple that these were issued to increase the capital of the A-1 company which was necessitated as A-1 company had applied for a

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2025 Supreme(Online)(ATFP) 13040

APPELLATE TRIBUNAL FOR FORFEITED PROPERTYBalesh Kumar, MEMBER, Rajesh Malhotra, MEMBERThe Deputy Director Directorate of Enforcement Jaipur v. M/s Kamal Sponge Steel & Power Ltd. & Ors.FPA-PMLA-3266/JP/2019

Share application money and premium obtained as a result of criminal activity relating to a scheduled offence (coal block allocation by cheating) constitute proceeds of crime under PMLA, irrespective of whether shares are allotted or funds are used lawfully.

Cases Referred (1)

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
Balesh Kumar, MEMBER, Rajesh Malhotra, MEMBER
The Deputy Director Directorate of Enforcement Jaipur v. M/s Kamal Sponge Steel & Power Ltd. & Ors.
FPA-PMLA-3266/JP/2019