Coal-scam: Attempt to acquire proceeds of crime cannot be termed money laundering, says court

New Delhi: A Delhi court has refused to take cognisance of a chargesheet against Adhunik Corporation Limited and its two directors in a coal scam case lodged by the ED, saying an attempt to acquire proceeds of crime or anticipating undue benefits cannot be termed money laundering.

In his December 23 order, Special Judge Arun Bhardwaj granted relief to Adhunik Corporation Ltd (ACL) and its then directors Mahesh Kumar Agarwal and Nirmal Kumar Agarwal in the case related to the New Patra Para coal block in Odisha.

According to the Enforcement Directorate (ED), the family members and Group companies of the accused infused funds amounting to Rs 50.37 crore in the garb of share capital in ACL in anticipation of "undue benefit to be derived or obtained" by ACL as a result of, or consequence to, criminal activity relating to a scheduled offence (lodged by the CBI), resulting into allotment of coal block.

The judge noted that according to the ED, the infusion of capital/ investment through the holding company in ACL was made in "anticipation" of undue benefit to be derived or obtained by ACL as a result of criminal activity relating to the scheduled offence.

"Therefore, as per the complainant (ED) itself, the undue benefits were yet to be derived or obtained and were only anticipated," the judge held.

He noted that ED itself has stated that the accused were attempting to acquire proceeds of crime and were anticipating undue benefits, "meaning thereby the proceeds of crime had yet to come into existence." "Therefore, an attempt to acquire proceeds of crime or anticipating undue benefits cannot be said to be covered by the definition of money laundering because till the stage of attempt or the stage of anticipating undue benefits, there are no proceeds of crime in existence. There was no money available for laundering," the judge said.

The judge noted that the infusion of funds had started even before the hatching of the conspiracy alleged in the predicate offence.

The investors were family members and group companies of the accused and there was no investor who invested in the ACL due to the allocation of coal block in its favour, the judge noted.

"The infusion of capital/ investment through family members and group companies will therefore not be covered by the definition of 'proceeds of crime' under Section 2 (1) (u) of PMLA (Prevention of Money Laundering Act)," the judge said.

When the family members and group companies invest in the shares of a company that has procured allocation of a coal block by cheating, their investment will not come under the definition of "proceeds of crime", the judge held.

He further noted that the family members and group companies had already made partial investments in ACL even before the allocation of the coal block in its favour.

Investments continued to be made by the family members and group companies even after de-allocation was imminent on the recommendations of the Inter-Ministerial Group as there was no substantial progress in the development of the coal block even after show cause notice on November 3, 2010, the judge noted.

"Therefore, the investments by family members and group companies in ACL will not be the proceeds of crime," he noted.

The judge further observed that the Delhi High Court has held categorically that an allocation of coal cannot possibly be viewed as amounting to proceeds of crime per se.

"This court is of the view that from the material placed before this court, no offence of money laundering under Section 3 of PMLA, is made out and there is no material to take cognizance of the offence of money laundering and to proceed further with this complaint," the judge said.

The accused were earlier convicted in a related corruption case lodged by the CBI for conspiracy and cheating the government in the allocation of a coal block by misrepresenting facts and by using forged documents as genuine.

Their four-year jail term, awarded by the special court, was later stayed by the Delhi High Court after they filed appeals against their conviction.