2025 Supreme(Online)(ATFP) 13041

APPELLATE TRIBUNAL FOR FORFEITED PROPERTY
M/s Kamal Sponge Steel & Power Ltd. – Appellant
Versus
The Deputy Director Directorate of Enforcement Jaipur – Respondent
FPA-PMLA-2267/JP/2018

The definition of proceeds of crime under PMLA is expansive and includes property derived indirectly from criminal activity; share capital raised based on misrepresentation to obtain a coal block allocation constitutes proceeds of crime even if the block was never mined.

Headnote:(A) Prevention of Money Laundering Act, 2002 - Sections 2(1)(u) (proceeds of crime), 2(1)(v) (property), 3 (offence of money laundering), 5(1) (provisional attachment), 8(1) (confirmation) - Indian Penal Code, 1860 - Sections 420, 120B - Prevention of Corruption Act, 1988 - Section 13(2) read with 13(1)(d) - Companies Act, 1956.

(B) Proceeds of crime - Definition is expansive and includes any property derived directly or indirectly from criminal activity relating to a scheduled offence - Allocation letter of a coal block constitutes “property” under PMLA as it confers a valuable right and is itself proceeds of crime - Share capital and premium collected on the strength of promise of coal block allotment (obtained through misrepresentation) are proceeds of crime even if collected before the formal allocation letter, as the criminal activity (submission of false application) commenced earlier - The offence of money laundering is independent and continuing - Legality of underlying transaction (private placement) does not prevent attachment if foundation is misrepresentation - Conviction for cheating under IPC establishes the criminal activity - Temporal nexus argument rejected.

Facts of the case:
The appellant company applied for allocation of a coal block after a government advertisement in 2006, allegedly misrepresenting its net worth and production capacity. The block was allocated in November 2008 but later deallocated in 2014 due to lack of environmental clearance. The CBI filed a charge sheet, and the Special Judge (CBI) convicted the company for cheating and criminal conspiracy under Section 420 IPC and related provisions. The Enforcement Directorate provisionally attached the company’s bank accounts, FDRs, and immovable properties totaling Rs. 32.17 crores as proceeds of crime, which was confirmed by the Adjudicating Authority. The company appealed, arguing that no coal was ever mined, no investor complained, share premium was legitimate, and funds were raised before the allocation letter.

Findings of Court:
The allocation letter is itself tainted property arising from the scheduled offences of cheating and conspiracy. Share capital and premium received on the expectation of the coal block (even if before the allocation letter) are directly or indirectly derived from the criminal activity of misrepresentation. The definition of proceeds of crime under Section 2(1)(u) is deliberately wide and covers such funds. The argument of temporal impossibility fails because the criminal activity (false application) began before the money was collected. The conviction by the Special Judge establishes the criminal activity. The ratio of the Delhi High Court judgments in similar coal block cases applies.

Issues: (i) Whether share application money and premium can be considered proceeds of crime when no coal was ever mined from the allocated block? (ii) Whether funds collected before the date of formal allocation letter can be linked to the criminal activity? (iii) Whether the absence of investor complaints or the fact that the company was unlisted precludes treating the share capital as proceeds of crime?

Ratio Decidendi: The definition of “proceeds of crime” under PMLA is broad and includes property derived indirectly from criminal activity. The allocation letter, being a valuable right obtained through misrepresentation, is itself proceeds of crime. Any property (including share capital and premium) that is traceable, directly or indirectly, to that criminal activity—even if received before the formal allocation—constitutes proceeds of crime. Money laundering is a continuing offence, and the legality of the transaction form (private placement) cannot shield the illicit origin. Result : Appeal dismissed for being devoid of merit.

FINAL ORDER

11.12.2025

This Order disposes of the Appeal No. FPA-PMLA-2267/JP/2018 filed by M/s Kamal Sponge Steel & Power Ltd., against the Order dated 22.03.2018 (Impugned Order) passed by the Ld. Adjudicating Authority (AA) under the Prevention of Money Laundering Act, 2002 (PMLA) in the Original Complaint No. 833/2017 (OC). The Provisional Attachment Order No.09/2017 dated 27.09.2017 (PAO) issued in ECIR No. ECIR/10/JPZO/2013 dated 27.02.2013 was confirmed vide the Impugned Order. Provisional attachment of seven Bank Accounts and FDRs (Fixed Deposit Receipts) of the Appellant with total cash balance of Rs. 2,26,41,973.85 and of the immovable properties of the Appellant comprising of land, part of plant and machinery and power plant all valued at Rs. 29,91,08,026/- was also confirmed. Thus, the total value of the movable and immovable properties of which the attachment is confirmed is Rs. 32,17,50,000/-.

2. Ld. Counsel for the Appellant challenged the Impugned Order on the ground that there is absolutely no allegation in either the FIR or in the charge-sheet filed by the CBI (Central Bureau of Investigation) against the Appellant Company about it having cheated any investor or shareholder or having misrepresented facts to the public. Ld. Counsel stated that the substance of the charge against the Appellant is that it misrepresented its net worth and production capacity in the Application submitted to the Ministry of Coal to secure the Thesgora-B/Rudrapuri Coal Block. Ld. Counsel contended that no investor has filed any complaint alleging cheating. Since the investigation under PMLA is founded upon the Scheduled offence, the allegation of the Respondent Directorate to hold share application money as proceeds of crime (PoC), is baseless and wrong. Ld. Counsel contended that the allegation of the Enforcement Directorate (ED) that the share premium of Rs. 900/- per share was collected based on the allurement of the Coal Block is unsustainable. The Respondent Directorate cannot on its own could have created a new offence of cheating, when in fact the predicate agency CBI has not charged the Appellant, anything relating to the investment therein. Ld. Counsel stated that raising share capital at a premium is a legitimate statutory right under the Companies Act, 1956. Ld. Counsel contended that the allegation ignores market dynamics as there was unprecedented boom in the steel sector during the Financial Year 2004-05. The Appellant Company therefore legitimately benefited from the sectoral upswing by raising funds based on industry optimism rather than any specific allurement of a Coal Block that had not yet been allocated.

3. Ld. Counsel for the Appellant stated that the argument of the Respondent Directorate about the share premium being proceeds of crime is fallacious, since Rs. 39.69 crores of this share capital were infused by the Promoters/Directors/Sister Firms. Ld. Counsel also argued that that the Coal Block project failed as the Joint Venture could not obtain the necessary Environmental Clearance and Forest Clearance and the Ministry of Coal De-Allocated the Block on 17.02.2014. There was a net loss of Rs. 6.63 Crores to the Company. Ld. Counsel contended that there cannot be proceeds of crime where the alleged criminal activity resulted in financial loss. Moreover, the funds raised through share premium were fully deployed for legitimate business liabilities viz repayment of term loan, capital expenditure and clearing dues of creditors. Ld. Counsel stated that there is no evidence whatsoever that these amounts were siphoned off, diverted for personal benefit or used to acquire non-productive assets.

4. Ld. Counsel for the Appellant stated that the Coal Block Allocation letter was issued on 21.11.2008. However, the Appellant had already raised approximately Rs. 19.97 Crores as share capital plus premium on or before 31.03.2008. Ld. Counsel stated that in fact approximately Rs. 4 Crores was raised as share capital in 2004-05 an

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