Court terms repeated challenges to provisional attachments as abuse of process; sets aside single-judge order favouring Prakash Industries.
Enforcement Directorate.
In a significant ruling that broadens the scope of the Prevention of Money Laundering Act, 2002 (PMLA), the Delhi High Court has held that any appreciation in share value arising from illegal activity amounts to “proceeds of crime” and can therefore be attached by the Enforcement Directorate (ED).
A Division Bench of Justices Anil Kshetarpal and Harish Vaidyanathan Shankar, in the case Directorate of Enforcement v M/s Prakash Industries Ltd, ruled that the offence of money laundering includes not just the initial proceeds of crime, but also any subsequent layering or projection of illicit gains, irrespective of the form they later assume.
“The usage of the word ‘indirectly’ while defining proceeds of crime under the PMLA establishes the intentional expansive definition,” the Bench observed. “Once proceeds are generated through any criminal activity, routing them through multiple channels or transactions to create ostensible legitimacy does not protect the accused from liability under Section 3 of the PMLA.”
The Court illustrated its point with an example, stating that if a public servant accepts a bribe and invests it in real estate, narcotics, or shares, the taint of illegality persists. “If the sum received as bribe is invested in share market, which later increases due to market forces, the entire enhanced amount shall constitute proceeds of crime,” the Bench said. “Appreciation in value does not cleanse or purify the tainted origin.”
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Court cautions against misuse of Article 226
The Division Bench also criticised the “recurring practice” of challenging provisional attachment orders (PAOs) issued by the ED under Article 226 of the Constitution, calling it an abuse of the judicial process.
“Jurisdiction under Article 226, being discretionary and equitable, ought not to be exercised to supplant the statutory remedies envisaged under the relevant statute,” the judges noted.
Background of the case
The ruling came in connection with the ED’s attachment of properties worth over ₹122 crore belonging to Prakash Industries Limited (PIL) and its group company Prakash Thermal Power Limited (PTPL). The ED alleged that PIL, in 2007, misrepresented its net worth while applying for allocation of the Fatehpur coal block in Chhattisgarh. Even before formal allocation, the company informed the Bombay Stock Exchange (BSE) of having secured the coal block, triggering a sharp rise in its share price.
PIL and its promoters then sold shares on a preferential basis, allegedly generating “proceeds of crime.” The CBI and ED subsequently initiated probes into the matter.
A single-judge bench of the High Court, however, had quashed the ED’s attachment order in January 2023, reasoning that since the CBI’s FIR and chargesheet were limited to the misrepresentation in the coal block application — and not the share transactions — the ED lacked jurisdiction to issue the PAO.
Division Bench reverses single-judge ruling
The Division Bench disagreed, holding that the single-judge’s reasoning was based on a “fundamental misconception” of the nature and scope of the PMLA. The Court clarified that the ED’s powers under Section 5 of the Act to attach properties are “distinct, independent, and autonomous,” and that sharing information with other agencies under Section 66(2) is a separate procedural step, not a prerequisite for action.
Accordingly, the Bench set aside the single-judge’s order and upheld the ED’s attachment of Prakash Industries’ assets.
The ED was represented by Special Counsel Zoheb Hossain, along with Panel Counsel Vivek Gurnani and advocates Pranjal Tripathi, Kartik Sabharwal, and Sheikh Raqueeb.
Senior Advocate Dayan Krishnan, assisted by Ankur Chawla, Chander B. Bansal, and others, appeared for Prakash Industries.
This ruling reinforces the ED’s authority to attach assets under the PMLA even when the illicit gains have multiplied or changed form. It also sends a strong message against circumventing statutory remedies by invoking writ jurisdiction, marking an important precedent in India’s anti-money laundering jurisprudence.
