Directorate of Enforcement Vs Prakash Industries Ltd. (Delhi High Court)
Delhi High Court held that gains from legal transaction emanating from an illegal act would still be construed as “proceeds of crime” under the Prevention of Money Laundering Act, 2002. Thus, profits from artificially elevated share price qualifies as proceeds of crime and hence attachment justifiable.
Facts- The dispute between the parties arises from the allocation of Fatehpur Coal Block in favour of M/s Prakash Industries Limited [hereinafter referred to as ‘PIL’]. The primary allegations against PIL are two-fold. Firstly, it is alleged that PIL obtained the allocation of coal block, through fraudulent means; and secondly, prior to actual and formal allocation made in favour of PIL, it allegedly misrepresented before Bombay Stock Exchange [hereinafter referred to as ‘BSE’] that it had already received the allocation. This misrepresentation made by PIL before BSE purportedly caused an artificial rise in the share price of PIL, following which shares were sold on a preferential basis, thereby generating alleged proceeds of crime.
The present round of litigation traces its genesis to an application dated 12.01.2007, submitted by PIL to the Ministry of Coal for allocation of Fatehpur Coal Block for setting up a power plant, pursuant to a newspaper advertisement. While submitting the said application, PIL misrepresented its net worth as Rs.532 crores as on 31.03.2006, whereas, as per the Directorate and CBI, its actual net worth was (-) Rs.144.16 crores at the relevant time.
