Supreme Court lets money laundering probe against JSW steel proceed, denies quashing plea

New Delhi: The Supreme Court on Tuesday declined to quash the money laundering proceedings against JSW Steel and its officers in connection with an illegal mining scam involving Obulapuram Mining Company (OMC), owned by mining baron G Janardhana Reddy.

After noting that JSW has already approached the appellate tribunal against attachment of its bank accounts under Section 26 of the PMLA, a bench of Justices Dipankar Datta and Augustine George Masih said the appropriate course would be to allow the statutory process to run its course to reach its logical conclusion.

“Interference at this stage would prejudge issues that are squarely within the domain of the appellate tribunal, including whether the attached property represents ‘proceeds of crime’ within the meaning of Section 2(1)(u) PMLA and whether the withdrawals were in violation of law,” the court said.

The court held that no case for quashing the cognizance order or interdicting proceedings was made out.

It noted that the allegations, at this stage, were confined to the recovery of a quantified amount of Rs 33.80 crore and were not related to fastening criminal liability upon the appellants beyond that process.

“The apprehension of arbitrary prosecution is, therefore, misplaced,” the bench said.

The court also pointed out that it was undisputed that the ECIR registered by the Enforcement Directorate did not name JSW as an accused. Even the chargesheet filed by the CBI had dropped JSW as an accused in the supplementary report after finding no material to proceed.

The court said the ED complaint was not predicated on any independent act of laundering but on the allegation that JSW withdrew certain sums from attached bank accounts in violation of ED orders, thereby frustrating recovery of Rs 33.80 crore alleged to be “proceeds of crime.”

It noted that the core issue is not whether JSW’s entire banking operations were tainted, but whether the specific amount of Rs 33.80 crore, representing unpaid consideration for iron ore supplied by Associate Mining Company (AMC), a Reddy firm, can be treated as “proceeds of crime” and whether its withdrawal post provisional attachment order constitutes an offence under Section 3 PMLA.

“The apprehension that the entire account balance constitutes proceeds of crime is misplaced, particularly when the admitted position is that payments were made and received through regular banking channels and are duly reflected in the books of account,” the bench said.

In 2009, JSW had entered into an agreement with OMC for supply of 1.5 MT of iron ore, fines, and lumps to its plant at Vijayanagar, making advance payments of about Rs 130 crore to OMC. From November 2009 to December 2009, partial supplies were made by OMC from its mines and thereafter till March 2010 from its group companies, including Ananthpur Mining Corporation and AMC.

As OMC failed to supply the remaining iron ore despite assurances that supply would recommence upon reopening of the mines, JSW sought adjustment of the remaining amount from the advance paid.

Meanwhile, the court had directed an investigation into the illegal mining and export of iron ore by AMC, a partnership firm of Reddy. Pursuant to this direction, the CBI registered a case against AMC, its partners Reddy and G Lakshmi Aruna, along with others, filing a chargesheet in May 2012.

Even though JSW was initially named as an accused, a supplementary final report in September 2013 dropped charges, exonerating it in the CBI case.

Because of the non-supply of iron ore and the outstanding amount against OMC, arbitration proceedings were initiated by JSW. The sole arbitrator in May 2014 directed refund of the principal outstanding balance of Rs 35.44 crore to JSW, after adjusting sums payable to AMC along with interest and damages.

The Enforcement Directorate later attached the company’s bank accounts in 2015 following the registration of a money laundering case against Reddy and Aruna in 2012.

In 2022, the ED filed a prosecution complaint against JSW for operating its bank accounts while they were attached. Further, the probe agency alleged that JSW had received supplies of illegally mined ore from AMC and had not paid for it, thus the money owed to the Reddy firm qualified as proceeds of crime.