ED Can Attach Assets u/ PMLA without Directly Linking Predicate Offence to Every Transaction: Delhi HC [Read Order]

The Delhi High Court has held that the Enforcement Directorate (ED) can attach property under the Prevention of Money Laundering Act, 2002 (PMLA) without the need to directly link every transaction to the predicate offence, so long as the property forms part of the same chain of criminal activity and there exists a clear nexus between the property attached and the underlying criminal activity.

The decision was given by the High Court against a Letters Patent Appeal filed by the Enforcement Directorate against M/s Prakash Industries Ltd (Prakash Industries).

The case arose from an application filed by Prakash Industries’ in January 2007 for allocation of the Fatehpur Coal Block in Chhattisgarh. The company allegedly misrepresented its net worth as ₹532 crore, while the investigation later found that its actual net worth was in the negative at ₹144.16 crore.

Before the formal allocation was made on 6 February 2008, the company informed the Bombay Stock Exchange (BSE) that it had already been allotted the block. This false representation caused a dramatic increase in Prakash Industries’ share price from ₹31 in April 2007 to ₹254.60 by January 2008. Subsequently, on 3 January 2008, a preferential allotment and sale of 62,50,000 shares allegedly yielded ₹118.75 crore in unlawful gain.

Following the Supreme Court’s decision in Manohar Lal Sharma v. Union of India (2012) cancelling certain coal block allocations, the Central Bureau of Investigation (CBI) registered an FIR under Sections 120B and 420 of the Indian Penal Code and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption Act, alleging fraudulent procurement of the coal block.

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The ED also registered a case and initiated investigation under the PMLA. The ED seized jewellery worth ₹1.66 crore and related records, later filing a complaint under Section 5(5) of the Act, which was initially upheld by the Adjudicating Authority on 5 April 2017.

On 29 November 2018, the Directorate issued a Provisional Attachment Order (PAO) attaching assets valued at ₹122.74 crore as proceeds of crime acquired from the inflated share sale.

The attachment was challenged by Prakash Industries, arguing that since the share transactions were not explicitly mentioned in the FIR or chargesheet of the CBI, the ED lacked jurisdiction to conduct proceedings in the matter. It further contended that under Section 66(2) of the PMLA, the Directorate was obligated to communicate such information to the jurisdictional police before invoking its power of attachment under Section 5 of the PMLA.

The ED, represented by Zoheb Hossain, Vivek Gurnani, Pranjal Tripathi, Kartik Sabharwal, and Sheikh Raqueeb, countered that Section 5(1) empowers the Directorate to act preventively once there is “reason to believe” based on material that proceeds of crime exist and may be dissipated.

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It was argued that the PMLA is a self-contained code, and its operation cannot be restricted by the contents or timing of a predicate FIR.

Prakash Industries was represented by Dayan Krishnan, Ankur Chawla, Chander B. Bansal, Gurpreet Singh, Jatin S. Sethi, Bukul Jain, Kunal Aggarwal, Shivam Bansal and Yash Pandey.

The Division Bench of Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar noted that the PMLA attachment mechanism is preventive and not punitive, and is intended to preserve property suspected to be proceeds of crime pending adjudication.

It observed that requiring the ED to await explicit mention of every transaction in the predicate agency’s record would defeat the purpose of the Act. The Bench further clarified that Section 66(2) merely enables inter-agency exchange of information and does not operate as a jurisdictional precondition for invoking Section 5 powers..

The Court said that the ED had recorded its “reason to believe” based on material linking the share-sale proceeds to the fraudulent coal block allocation, thereby satisfying statutory prerequisites for attachment. It reiterated that the High Court’s writ jurisdiction cannot be invoked to bypass the adjudicatory framework under the Act.

Accordingly, the Bench restored the provisional attachment of ₹122.74 crore by ED, holding that the Directorate can attach assets under the PMLA even without each transaction being directly enumerated in the predicate offence, in the event that the property is part of the same continuing process of money laundering.

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