The Delhi High Court has ruled that profits generated from bribe money invested in the stock market constitute proceeds of crime and fall within the ambit of the offence of money laundering under the Prevention of Money Laundering Act (PMLA).
A division bench of Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar, in its November 3 judgment, observed that any appreciation in value of illegally acquired assets “does not cleanse or purify the tainted origin,” since the augmented value is inextricably and indirectly derived from the original illicit source of bribe.
The bench clarified that money laundering is a continuing offence that extends beyond the initial criminal acquisition.
“The offence of money laundering being continuing in nature is not confined only to the initial act of criminal acquisition but also extends to every process or activity connected with the proceeds, including layering through multiple transactions, integration into the legitimate economy and projection of the acquired wealth as lawful,” the court said.
Illustrating with an example, the judges explained that if a public servant accepts a bribe and invests it in real estate, narcotics, or shares, the taint of illegality persists, regardless of subsequent profits.
“Similarly, if the sum received as bribe is invested in share market, which later increases or goes beyond and above the value of actual investment owing to market forces or corporate actions, the entire enhanced amount shall constitute as proceeds of crime,” the court held.
The ruling came while allowing the Enforcement Directorate’s appeals challenging a single judge’s order in the case linked to the allocation of the Fatehpur Coal Block in favour of M/s Prakash Industries Limited (PIL).
The ED had issued a Provisional Attachment Order (PAO) attaching properties worth Rs 122.74 crore, contending that undue gains from the sale of preferential shares were proceeds of crime.
The single judge had earlier quashed the order, holding that since the issuance of preferential shares was not part of the FIR, chargesheet, or ECIR, the ED lacked jurisdiction.
Setting aside that view, the division bench held that the single judge ought not to have interfered, especially since an appeal from the same order of the appellate tribunal was already pending before the High Court.
It noted that there was no violation of natural justice, as a PAO is only a provisional measure pending adjudication.
“An allocation letter leading to an exclusive commercial benefit falls well within the scope of an intangible property and as such constitutes proceeds of crime,” the court observed.
The bench added that PIL’s alleged misrepresentation before the Bombay Stock Exchange—claiming allocation of the coal block before it was formally granted—was a criminal activity that artificially inflated share prices, generating proceeds of crime.
“Even if no separate predicate offence is registered in relation to the subsequent act of utilisation of property to acquire funds through a legalised transaction, the classification of the illegal gains used by means of a legal transaction emanating from an illegal means adopted for attaining coal block allocation would still be construed as proceeds of crime,” the court concluded.
The division bench allowed the ED’s appeal, restoring the provisional attachment of assets worth Rs 122.74 crore linked to Prakash Industries Limited, and reaffirmed that profits derived from bribe-tainted funds remain illegally sourced under PMLA, regardless of subsequent appreciation.
