The Delhi High Court has ruled that profits made from investing bribe money in the stock market remain “proceeds of crime” under the PMLA. The court said appreciation in value doesn’t cleanse the tainted origin of bribe-derived funds.
New Delhi: The Delhi High Court has ruled that profits made from investing bribe money in the stock market will still be treated as “proceeds of crime” under the Prevention of Money Laundering Act (PMLA). The court made it clear that even if the value of such investments increases, the illegal origin of the money remains tainted.
In its judgment delivered on November 3, a division bench of Justices Anil Kshetarpal and Harish Vaidyanathan Shankar stated that,
“Appreciation in value 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 explained that the offence of money laundering is not limited to just the initial act of acquiring illegal money.
It said,
“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.”
To explain this further, the court gave an example: if a public servant accepts a bribe and later invests it in any form of business—be it narcotics, real estate, or shares—the illegal nature of the money does not disappear.
The court observed that,
“If a public servant receives a bribe, which constitutes an offence under the Prevention of Corruption Act, and thereafter invests the sum in narcotics trade, real estate, preferential shares or any other avenue, the taint of illegality would still continue.”
The bench clarified that even when such bribe money is invested and grows in value, the entire amount, including the profits, will still be considered proceeds of crime.
It said,
“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’s decision came while hearing appeals filed by the Enforcement Directorate (ED) against a single judge’s order in the case linked to the allocation of the Fatehpur Coal Block to M/s Prakash Industries Limited (PIL).
The ED had earlier issued a Provisional Attachment Order (PAO) to attach properties worth Rs 122.74 crore. It argued that the illegal financial benefits earned by PIL from the sale of preferential shares were actually proceeds of crime.
However, a single judge had earlier ruled that the ED had no authority to issue the PAO since the sale of preferential shares was not mentioned in the FIR, charge sheet, or the Enforcement Case Information Report (ECIR).
In this case, PIL was accused of obtaining the Fatehpur Coal Block through fraudulent means. Even before the formal allocation, it allegedly told the Bombay Stock Exchange (BSE) that the allocation had already been granted.
This, according to the ED, caused an artificial increase in the company’s share prices. Later, shares were sold on a preferential basis, generating what the agency said were illegal profits.
The division bench of the High Court overturned the single judge’s order, observing that it was not proper for the lower court to interfere, especially when an appeal on the same issue was already pending before the High Court.
The bench held that
“it ought not to have interfered in the matter, particularly since an appeal arising from the very same order of the appellate tribunal was already pending adjudication before the high court.”
It further said that the single judge was wrong to interfere with the ED’s provisional attachment, as
“it was not appropriate for the single judge to interfere with the issuance of the PAO as there was no infraction of the principles of natural justice and that the constitutes only a provisional measure pending adjudication and does not culminate in any final determination of rights.”
The court also emphasized that even the benefits derived from an allocation letter are covered under the scope of “proceeds of crime.”
The bench remarked,
“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.”
It explained that PIL’s alleged misrepresentation to obtain the coal block allocation amounted to a criminal act that generated illegal profits.
The court observed,
“The misrepresentation by PIL to obtain such an allocation would be rendered as a criminal activity, resultantly generating proceeds of crime under the PMLA.”
Finally, the bench clarified that even if a separate case is not filed for how the illegal gains were later used or invested, the money remains tainted.
It stated,
“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’.”
This ruling reinforces that under the PMLA, any property or money that originates from illegal activities—even when disguised as legitimate investments—will continue to be treated as proceeds of crime, keeping the taint of illegality intact.
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