Profit on bribe money after investing in shares constitute proceeds of crime: HC

New Delhi: The Delhi High Court has held that the profits earned on bribe money after investment in share market would constitute as proceeds of crime and amounts to offence of money laundering.

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 court 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,” a bench of Justices Anil Kshetarpal and Harish Vaidyanathan Shankar said in a November 3 judgment.

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Giving an example, the bench said 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 entire corpus shall be liable to be attached irrespective of the subsequent channels through which it has been routed or the forms it assumes subsequently, it added.

“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,” it said.

The court passed the judgment while allowing the appeals of the Enforcement Directorate (ED) challenging a single judge order in relation to the case arising from the allocation of Fatehpur Coal Block in favour of M/s Prakash Industries Limited (PIL).

A Provisional Attachment Order (PAO) was issued, attaching properties valued at Rs 122.74 crore, on the premise that the undue financial gains, obtained by PIL, arose from the sale of preferential shares constituted proceeds of crime.

The single judge had held that since the issuance of preferential shares did not form part of either the FIR, chargesheet or ECIR, the ED lacked the power and jurisdiction to issue the PAO.

It is alleged that PIL obtained the allocation of the coal block, through fraudulent means and prior to actual and formal allocation made in favour of the company, it allegedly misrepresented before Bombay Stock Exchange (BSE) that it had already received the allocation.

It was alleged that this misrepresentation made by PIL before BSE purportedly caused an artificial rise in the company’s share price, following which shares were sold on a preferential basis, generating alleged proceeds of crime.

The division bench set aside the single judge’s order, saying 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.

The bench said 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.

“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 said.

The bench added that the misrepresentation by PIL to obtain such an allocation would be rendered as a criminal activity, resultantly generating proceeds of crime under the PMLA.

It said 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”.

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